Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
989338 | World Development | 2009 | 12 Pages |
Abstract
SummaryThis paper studies the driving forces behind the considerable expansion of the underground economy during the late 1990s. I propose a novel explanation for this phenomenon: the sharp increase in market competition worldwide, which reduces prices and profits and drives firms into the shadow economy. Empirical evidence from a panel covering 45 countries from 1995 to 2000 shows that increased competition is indeed correlated with an expansion of the underground economy. The effect is strongest in low-tax, high-corruption countries that do not provide the public services which make it worthwhile for firms to remain official despite growing competitive pressure.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Liliane Karlinger,