Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69

Eric Friedman (), Simon Johnson, Daniel Kaufmann and Pablo Zoido-Lobaton
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Eric Friedman: Rutgers University
Pablo Zoido-Lobaton: The World Bank

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: Across 69 countries, higher tax rates are associated with less unofficial activity as a percent of GDP but corruption is associated with more unofficial activity. Entrepreneurs go underground not to avoid official taxes but to reduce the burden of bureaucracy and corruption. Dodging the "Grabbing Hand" in this way reduces tax revenues as a percent of both official and total GDP. As a result, corrupt governments become small governments and only relatively uncorrupt governments can sustain high tax rates.

Keywords: corporate governance; corruption; tax rates; unofficial activity (search for similar items in EconPapers)
Date: 1999-10-12
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Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:199921

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