Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97439
Authors: 
Teobaldelli, Désirée
Schneider, Friedrich
Year of Publication: 
2013
Series/Report no.: 
Working Paper, Department of Economics, Johannes Kepler University of Linz 1316
Abstract: 
We analyze, both theoretically and empirically, the influence of direct democratic institutions on the size and development of shadow economies. Our model suggests that, as the extent of direct democracy increases, implemented fiscal policies more nearly reflect the preferences of citizens and so reduce their incentives to operate in the informal sector. This theory implies a negative relationship between the extent of direct democracy and the size of the country's shadow economy. We also theorize that direct democracy has a greater effect in reducing the informal sector when the former is at low or intermediate values and when the electoral system is characterized by a larger district magnitude. An empirical investigation of a sample of 57 democracies confirms our model's predictions.
Subjects: 
shadow economy
direct democratic institutions
district magnitude
good governance
JEL: 
O17
P16
H11
H26
Document Type: 
Working Paper

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