Inclusive Growth, Institutions, and the Underground Economy

By Adil Mohommad, Anoop Singh, Sonali Jain-Chandra

February 1, 2012

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Format: Chicago

Adil Mohommad, Anoop Singh, and Sonali Jain-Chandra. Inclusive Growth, Institutions, and the Underground Economy, (USA: International Monetary Fund, 2012) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Worldwide protests against the perceived lack of economic opportunity and failure of governance have refocused attention on the need for inclusive growth and strong institutions. In developing countries, large informal economies limit state capacity to deliver governance and strong institutions, which in turn discourages participation in and expansion of the formal economy. This paper analyzes the determinants of the underground economy, with particular emphasis on the role of institutions and the rule of law. We find that when businesses are faced with onerous regulation, inconsistent enforcement and corruption, they have an incentive to hide their activities in the underground economy. Empirical analysis suggests that institutions are a more important determinant of the size of the underground economy than tax rates.

Subject: Economic sectors, Informal economy

Keywords: Economic activity, Economy, Global, IFS database, Informal economy, Informal economy limit, Institutions, Shadow economy, Shadow economy rise, Size of the shadow economy, Underground economy, Unofficial economy, WP

Publication Details

Pages:

14
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/047
Stock No:

WPIEA2012047
ISBN:

9781463937089
ISSN:

1018-5941

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