TY - JOUR
T1 - Corruption and the shadow economy
AU - Choi, Jay Pil
AU - Thum, Marcel
N1 - Copyright:
Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2005/8
Y1 - 2005/8
N2 - This article develops a simple framework for analyzing 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 instead of as a substitute.
AB - This article develops a simple framework for analyzing 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 instead of as a substitute.
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U2 - 10.1111/j.1468-2354.2005.00347.x
DO - 10.1111/j.1468-2354.2005.00347.x
M3 - Review article
AN - SCOPUS:27744508264
VL - 46
SP - 817
EP - 836
JO - International Economic Review
JF - International Economic Review
SN - 0020-6598
IS - 3
ER -