Corruption and the shadow economy

Jay Pil Choi, Marcel Thum

Research output: Contribution to journalReview article

94 Citations (Scopus)

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 languageEnglish
Pages (from-to)817-836
Number of pages20
JournalInternational Economic Review
Volume46
Issue number3
DOIs
Publication statusPublished - 2005 Aug 1

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Shadow economy
Corruption
Entrepreneurs
Economic activity
Underground economy
Self-selection
Government
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All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

Choi, Jay Pil ; Thum, Marcel. / Corruption and the shadow economy. In: International Economic Review. 2005 ; Vol. 46, No. 3. pp. 817-836.
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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 journalReview article

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