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Shadow economy, tax policies, institutional weakness and financial stability in selected OECD countries

Author

Listed:
  • Claudiu T. Albulescu

    (Politehnica University of Timisoara and CRIEF, University of Poitiers)

  • Matei Tamasila

    (Politehnica University of Timisoara)

  • Ilie M. Taucean

    (Politehnica University of Timisoara)

Abstract

We investigate the effect of taxation, corruption and financial stability on the shadow economy in 23 OECD countries. For this purpose, we use a panel framework and a difference-in-difference system-GMM model over the period 2001 to 2013. While the taxation effects are assessed through the corporate income tax and the average tax wedge, the banking sector Z-score computed based on four different models represents our proxy for the financial system stability. Our results show that only the average tax wedge by family has a positive influence on the shadow economy dynamics, whereas the effect of corporate income tax proves insignificant. Further, our findings indicate a negative influence of the financial stability on the shadow economy, but the significant effect depends on how the Z-score is calculated. Finally, the corruption perception positively impacts the shadow economy dynamics. All in all, our outcomes support the idea that excessive tax burden, financial instability and institutional weaknesses range among the factors influencing the shadow economy.

Suggested Citation

  • Claudiu T. Albulescu & Matei Tamasila & Ilie M. Taucean, 2016. "Shadow economy, tax policies, institutional weakness and financial stability in selected OECD countries," Economics Bulletin, AccessEcon, vol. 36(3), pages 1868-1875.
    • Handle: RePEc:ebl:ecbull:eb-16-00536
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    References listed on IDEAS

    as
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    Cited by:

    1. Bulent Diclehan Cadirci & Mustafa Tekdere, 2022. "The Effect of Economic Uncertainty on the Tax Wedge: The Case of Selected OECD Countries," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-2), pages 787-822, December.
    2. Cong Minh Huynh & Hoai Nam Tran, 2021. "Moderating effects of corruption and informality on the fiscal decentralization—economic growth nexus: Insights from OECD countries," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(2), pages 355-373, June.
    3. Folorunsho M. Ajide, 2021. "Shadow economy in Africa: how relevant is financial inclusion?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 29(3), pages 297-316, April.

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    More about this item

    Keywords

    shadow economy; tax policies; financial stability; Z-score; GMM model; OECD countries;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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