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Title:Pollution, shadow economy and corruption: Theory and evidence PDF Logo
Authors:Biswas, Amit K.
Farzanegan, Mohammad Reza
Thum, Marcel
Issue Date:2011
Series/Report no.:CESifo working paper: Resource and Environment Economics 3630
Abstract:We study how the shadow economy affects pollution and how this effect depends on corruption levels in public administration. Production in the shadow economy allows firms to avoid environmental regulation policies; a large informal sector may be accompanied by higher pollution levels. Our theoretical model predicts that controlling the levels of corruption can limit the effect of the shadow economy on pollution. We use panel data covering the period from 1999-2005 from more than 100 countries to test this theoretical prediction. Our estimates confirm that the relationship between the shadow economy and the levels of pollution are dependent on the levels of corruption. Our results hold when we control for the effects of other determinants of pollution, time varying common shocks, country-fixed effects and various additional covariates.
Subjects:environmental pollution
shadow economy
corruption
panel data
JEL:Q53
Q56
Q58
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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