Corruption and the Shadow Economy: A Structural Equation Model Approach
by
Andreas Buehn, Friedrich Schneider
(May 2009)
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.
Text: See Discussion Paper No. 4182 
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