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Title:Corruption and the shadow economy PDF Logo
Authors:Choi, Jay Pil
Thum, Marcel
Issue Date:2003
Series/Report no.:Dresden discussion paper in economics 02/03
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.
Subjects:corruption
shadow economy
official economy
self-selection
JEL:D9
H2
K4
L1
Document Type:Working Paper
Appears in Collections:Dresden Discussion Paper Series in Economics, Faculty of Business and Economics, TU Dresden

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