Corruption and the Shadow Economy*
Year: 2005
Type: article
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.
Source: International Economic Review
Authors: Jay Pil Choi, Marcel Thum
Institutions: Technische Universität Dresden, Michigan State University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3122254355