Shadow Economy, Rent-Seeking Activities and the Perils of Reinforcement of the Rule of Law

Ekaterina Vostroknutova

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: An economy is considered where a possibility to seek rents (a particular case of this activity is corruption) exists along with production. A producer is able to hide part of his output from both bribery and taxation. It is shown that the presence of a shadow sector has di?erent e?ects in economies with high and low rent-seeking. As expected, in the economy with low corruption the direct law enforcement is bene- ficial for growth, and reduces the shadow sector. However, in the highly corrupt economy, combating the shadow economy reduces output and increases corruption, while combating corruption reduces the shadow economy.

Keywords: corruption; rent-seeking; shadow economy; law enforcement; transition (search for similar items in EconPapers)
JEL-codes: D72 H26 K42 O17 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2003-03-12
New Economics Papers: this item is included in nep-dev, nep-law, nep-pbe and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Shadow Economy, Rent-Seeking Activities and the Perils of Reinforcement of the Rule of Law (2003)
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