The impact of tax morale and institutional quality on the shadow economy

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.joep.2008.08.004 Byline: Benno Torgler (a)(c)(d), Friedrich Schneider (b)(c)(d) Keywords: Shadow economy; Tax morale; Institutional quality; Government intervention; Corruption Abstract: This paper uses a multivariate analysis to examine how countries' tax morale and institutional quality affect the shadow economy. The literature strongly emphasizes the quantitative importance of these factors in understanding the level of and changes in the shadow economy. Newly available data sources offer the unique opportunity to further illuminate a topic that has received increased attention. After controlling for a variety of potential factors, we find strong support that a higher tax morale and a higher institutional quality lead to a smaller shadow economy. Author Affiliation: (a) The School of Economics and Finance, Queensland University of Technology, G.P.O. Box 2434, Brisbane, QLD 4001, Australia (b) Department of Economics, Johannes Kepler University of Linz, A-4040 Linz-Auhof, Austria (c) CREMA - Center for Research in Economics, Management and the Arts, Switzerland (d) CESifo, Poschingerstrasse 5, D-81679 Munich, Germany Article History: Received 28 September 2007; Revised 22 August 2008; Accepted 26 August 2008