Title
Give Me Liberty, or I Will Produce Underground: Effects of Economic Freedom on the Shadow Economy
Document Type
Article
Keywords
P10; O17; C23
Identifier Data
https://doi.org/10.1002/soej.12303
Publisher
Wiley Online Library
Publication Source
Southern Economic Association
Abstract
This article examines the impact of economic freedom on the shadow economy. Using panel data on over 100 countries from 2000 to 2015, we find that economic freedom is effective at reducing the spread of the shadow economy. Moreover, after disaggregating economic freedom into its five main components, the results suggest that all aspects of economic freedom significantly mitigate shadow activities with freedom from regulation exhibiting the largest impact. Overall, these findings are robust after accounting for alternate measures of the shadow economy, simultaneity, outliers, and nonlinearities. Thus, countries aiming to combat the spread of shadow activities would benefit from policies that support economic freedom.
