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Do fiscal decentralization and income inequality affect the size of the shadow economy? A panel data analysis for OECD countries

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  • Wolfram Berger
  • Simone Salotti
  • Jordi Sardà

Abstract

In this article, we study fiscal decentralization and inequality as driving forces of the shadow economy in advanced economies. Our empirical analysis suggests that a reduction in income inequality will contain the shadow economy, whereas expenditure and tax decentralization do not significantly impact it. As decentralization is generally believed to increase government efficiency, this result is indicative of already highly efficient public administrations. Our results further indicate that redistributive policies positively affect the size of the shadow economy, whereas the tax burden does not have any discernible effect on the shadow economy in our sample.

Suggested Citation

  • Wolfram Berger & Simone Salotti & Jordi Sardà, 2018. "Do fiscal decentralization and income inequality affect the size of the shadow economy? A panel data analysis for OECD countries," Applied Economics Letters, Taylor & Francis Journals, vol. 25(8), pages 571-575, May.
    • Handle: RePEc:taf:apeclt:v:25:y:2018:i:8:p:571-575
    DOI: 10.1080/13504851.2017.1346356
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    Cited by:

    1. Boukbech, Rachid & Liouaeddine, Mariem, 2021. "Impact de la décentralisation fiscale sur l’inclusion sociale au niveau local au Maroc Une analyse empirique à l’aide de l’approche ARDL en séries chronologiques [Impact of fiscal decentralization ," MPRA Paper 110548, University Library of Munich, Germany.
    2. Xiaohua Chen & Xinyi Zhang & Yuhua Song & Xueping Liang & Liangjun Wang & Yina Geng, 2020. "Fiscal Decentralization, Urban-Rural Income Gap, and Tourism," Sustainability, MDPI, vol. 12(24), pages 1-14, December.
    3. Masca, Simona-Gabriela & Chis, Diana-Maria, 2023. "Distributional implications of informal economy in the EU countries: Accounting for the spread of tax evasion benefits and cultural characteristics," Socio-Economic Planning Sciences, Elsevier, vol. 87(PB).

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