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Taxes and Unofficial Economy in Developing and Developed Countries

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주제분류경제학

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Abstract

This paper empirically investigates the relationship between taxesand the size of the unocial economy. Consistent with the predic-tions of the recent theoretical works, we nd a signicant, nega-tive correlation between the tax ratio and the size of the unocialeconomy in developing countries, but a close-to-zero correlationin developed countries. We interpret these results as implyingthat the ‘institution eect’ dominates the ‘incentive eect’ in lessdeveloped countries, but that these eects cancel each other outin developed countries. We also nd that countries with largerGDP per capita, more competent bureaucrats, less corrupt gov-ernments, and lower unemployment rates tend to have a smallerunocial economy.

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