The not so dark side of trust: Does trust increase the size of the shadow economy?

D’Hernoncourt, Johanna and Pierre-Guillaume Méon

Journal of Economic Behavior & Organization, 2012, vol. 81, issue 1, 97-121

Abstract: This paper reports a negative relationship between the size of the shadow economy and generalized trust, in a sample of countries, both developed and developing. That relationship is robust to controlling for a large set of economic, policy, and institutional variables, to changing the estimate of the shadow economy and the estimation period, and to controlling for endogeneity. It is independent from trust in institutions and from income inequality, and is mainly present in the sample of developing countries. Those findings suggest that the tax compliance effect of trust dominates its role as a substitute for the formal legal system.

Keywords: Shadow economy; Informal sector; Trust (search for similar items in EconPapers)
JEL-codes: H26 O11 O17 O57 Z13 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (20)

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Working Paper: The not so dark side of trust: does trust increase the size of the shadow economy? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:81:y:2012:i:1:p:97-121

DOI: 10.1016/j.jebo.2011.09.010

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