Title
On the Relationship Between Income Inequality and the Shadow Economy
Document Type
Article
Keywords
income inequality; shadow economy
Identifier Data
http://doi.org/10.1057/s41302-018-0120-y
Publisher
Palgrave Macmillan
Publication Source
Eastern Economic Journal, 45(2), 224-249
Abstract
Abstract We empirically investigate the linkages between income inequality and the shadow economy. Employing a panel vector autoregression model, we build impulse response functions to study the time path of income inequality following a shock to the shadow economy, and vice versa. Our results using panel data for 144 countries over the period 1960–2009 reveal a bidirectional positive relationship between the two: specifically, higher income inequality promotes the spread of the shadow economy while the development of the shadow economy contributes to income inequality. Overall, these findings withstand a variety of robustness checks.
