Corruption and the shadow economy

Jay Choi and Marcel Thum

No 02/03, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: This paper develops a simple framework to analyze the links between corruption and the unofficial economy and their implications for the official economy. In a model of self-selection with heterogeneous entrepreneurs, we show that the entrepreneurs' option to flee to the underground economy constrains a corrupt official's ability to introduce distortions to the economy for private gains. The unofficial economy thus mitigates government-induced distortions and, as a result, leads to enhanced economic activities in the official sector. In this sense, the presence of the unofficial sector acts as a complement to the official economy rather than a substitute.

Keywords: corruption; shadow economy; official economy; self-selection (search for similar items in EconPapers)
JEL-codes: D9 H2 K4 L1 (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: CORRUPTION AND THE SHADOW ECONOMY (2005)
Working Paper: Corruption and the Shadow Economy (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuddps:0203

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