Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/48125
Authors: 
Choi, Jay Pil
Thum, Marcel
Year of Publication: 
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

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