Corruption and the Shadow Economy

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 633

Classification and Topics

• Classification: Wirtschaft
• Subject: corruption ; shadow economy ; official economy ; self-selection.

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Choi, Jay Pil ; Thum, Marcel
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/75911
• Last update: 10.03.2025, 11:44 AM CET