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Ethnic Divisions and the Size of the Informal Sector

Author

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  • David Dreyer Lassen

    (Economic Policy Research Unit, University of Copenhagen)

Abstract
This paper investigates the relationship between ethnic fragmentation and the size of the informal economy. Recent experimental and empirical research links, in turn, ethnicity and trust, and trust and tax compliance. In addition, recent empirical studies have identified an unwillingness to contribute to public goods benefiting other ethnic groups. Combining these insights, we argue that increasing ethnic fractionalization decreases voluntary tax compliance, and present empirical evidence at the macro level in a cross-section of more than fifty countries, that more ethnically fragmented societies have significantly larger informal sectors.

Suggested Citation

  • David Dreyer Lassen, 2003. "Ethnic Divisions and the Size of the Informal Sector," EPRU Working Paper Series 03-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:03-01
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    File URL: http://web.econ.ku.dk/epru/files/wp/wp-03-01.pdf
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    References listed on IDEAS

    as
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    6. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 811-846.
      • Glaeser, Edward Ludwig & Laibson, David I. & Scheinkman, Jose A. & Soutter, Christine L., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
    7. Fjeldstad, Odd-helge & Semboja, Joseph, 2001. "Why People Pay Taxes: The Case of the Development Levy in Tanzania," World Development, Elsevier, vol. 29(12), pages 2059-2074, December.
    8. Morton Deutsch, 1958. "Trust and suspicion," Journal of Conflict Resolution, Peace Science Society (International), vol. 2(4), pages 265-279, December.
    9. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
    10. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470, Elsevier.
    11. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    12. Alesina, Alberto & La Ferrara, Eliana, 2002. "Who trusts others?," Journal of Public Economics, Elsevier, vol. 85(2), pages 207-234, August.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Mwangi S. Kimenyi, 2006. "Ethnicity, Governance and the Provision of Public Goods," Journal of African Economies, Centre for the Study of African Economies, vol. 15(1), pages 62-99, April.
    2. Kohnert, Dirk, 2011. "Cultures of Innovation of the African Poor – Common roots, shared traits, joint prospects? On the articulation of multiple modernities in African societies and Black Diasporas in Latin America," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 241-262.
    3. Oludele Akinloye AKINBOADE, 2014. "Understanding the tax compliance culture of private sector tax practitioners in South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 6(3), pages 202-217.
    4. Isaac Addai & Jelena Pokimica, 2012. "An Exploratory Study of Trust and Material Hardship in Ghana," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 109(3), pages 413-438, December.
    5. Quintano, Claudio & Mazzocchi, Paolo, 2013. "The shadow economy beyond European public governance," Economic Systems, Elsevier, vol. 37(4), pages 650-670.
    6. Straub, Stéphane, 2005. "Informal sector: The credit market channel," Journal of Development Economics, Elsevier, vol. 78(2), pages 299-321, December.
    7. Adi Brender, 2005. "Ethnic Segregation and the Quality of Local Government in the Minorities Localities: Local Tax Collection in the Israeli-Arab Municipalities as a Case Study," Bank of Israel Working Papers 2005.01, Bank of Israel.
    8. Isaac Addai & Chris Opoku-Agyeman & Helen Ghartey, 2013. "An Exploratory Study of Religion and Trust in Ghana," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 110(3), pages 993-1012, February.
    9. Mladovsky, Philipa & Mossialos, Elias, 2008. "A Conceptual Framework for Community-Based Health Insurance in Low-Income Countries: Social Capital and Economic Development," World Development, Elsevier, vol. 36(4), pages 590-607, April.

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    More about this item

    Keywords

    informal sector; ethnic fragmentation; voluntary tax compliance;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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