Inclusive Growth, Institutions, and the Underground Economy

Author/Editor:

Adil Mohommad ; Anoop Singh ; Sonali Jain-Chandra

Publication Date:

February 1, 2012

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 12/47

Subject:

English

Publication Date:

February 1, 2012

ISBN/ISSN:

9781463937089/1018-5941

Stock No:

WPIEA2012047

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

14

Please address any questions about this title to publications@imf.org