The impact of economic freedom on corruption and the shadow economy

Peter Graeff

Chapter 25 in Handbook of Research on Economic Freedom, 2024, pp 372-386 from Edward Elgar Publishing

Abstract: The theoretical framework for considering the impact of economic freedom on corruption and the shadow economy can be traced back to early roots in economic and social theory. In this framework, economic freedom reduces corruption and activities in the shadow economy because it abolishes incentives for such crimes. Empirical studies find a rather robust decreasing effect of economic freedom on corruption and the shadow economy, but only when overall indices of economic freedom are applied. When subcomponents of the overall indices are used in empirical research or when short- and long-term effects are considered, economic freedom can lead to an increase in such crimes. The measured impact of economic freedom depends on the operationalization and the data. Most empirical results, however, are in accordance with propositions made by economic theories.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2024
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