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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/49520
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| Title: | | Decentralizatin and the shadow economy: Oates meets Allingham-Sandmo  |
| Authors: | | Bühn, Andreas Lessmann, Christian Markwardt, Gunther |
| Issue Date: | | 2011 |
| Series/Report no.: | | CESifo working paper: Public Finance 3551 |
| Abstract: | | This paper studies the impact of decentralization on the shadow economy. We argue that decentralization may decrease the size of the shadow economy mainly through two transmission channels: (1) Decentralization enhancing public sector efficiency (efficiency effect), and (2) decentralization reducing the distance between bureaucrats and economic agents, which increases the probability of detection of shadow economic activities (deterrence effect). Using various measures of fiscal, political and government employment decentralization in a cross-section of countries, we find the deterrence effect to be of more importance. The deterrence effect is stronger, the lower the degree of institutional quality. Remarkably, we find no robust evidence of the efficiency effect. |
| Subjects: | | decentralization shadow economy |
| JEL: | | O17 H77 D78 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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