Abstract
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.
| Original language | English |
|---|---|
| Pages (from-to) | 817-836 |
| Number of pages | 20 |
| Journal | International Economic Review |
| Volume | 46 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2005 Aug 1 |
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All Science Journal Classification (ASJC) codes
- Economics and Econometrics
Cite this
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Corruption and the shadow economy. / Choi, Jay Pil; Thum, Marcel.
In: International Economic Review, Vol. 46, No. 3, 01.08.2005, p. 817-836.Research output: Contribution to journal › Review article
TY - JOUR
T1 - Corruption and the shadow economy
AU - Choi, Jay Pil
AU - Thum, Marcel
PY - 2005/8/1
Y1 - 2005/8/1
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.
UR - http://www.scopus.com/inward/record.url?scp=27744508264&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=27744508264&partnerID=8YFLogxK
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 -