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Ethnic Divisions and the Size of the Informal Sector

David Lassen ()

No 03-01, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper investigates the relationship between ethnic fragmentation and the size of the informal economy. Recent experimental and empirical research links, in turn, ethnicity and trust, and trust and tax compliance. In addition, recent empirical studies have identified an unwillingness to contribute to public goods benefiting other ethnic groups. Combining these insights, we argue that increasing ethnic fractionalization decreases voluntary tax compliance, and present empirical evidence at the macro level in a cross-section of more than fifty countries, that more ethnically fragmented societies have significantly larger informal sectors.

Keywords: informal sector; ethnic fragmentation; voluntary tax compliance (search for similar items in EconPapers)
JEL-codes: H26 J15 O17 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2003-01
New Economics Papers: this item is included in nep-lam
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