Corruption and the Shadow Economy: A Structural Equation Model Approach

Andreas Buehn and Friedrich Schneider ()

No 4182, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The relationship between corruption and the shadow economy is not clear. Theoretically, they either substitute or complement each other – exhibiting either a negative or positive relationship. This paper – using a structural equation model with two latent variables – extracts information on various dimensions of corruption and the shadow economy to contribute to the debate on their relationship. It presents empirical evidence of a positive relationship between the shadow economy and corruption. The results show that the shadow economy influences corruption more than corruption influences the shadow economy.

Keywords: shadow economy; corruption; SEM models (search for similar items in EconPapers)
JEL-codes: D78 H11 H26 O17 O5 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2009-05
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (32)

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