We analyze, both theoretically and empirically, the influence of direct democratic institutions on the size and development of shadow economies. Our model suggests that, as the extent of direct democracy increases, implemented fiscal policies more nearly reflect the preferences of citizens and so reduce their incentives to operate in the informal sector. This theory implies a negative relationship between the extent of direct democracy and the size of the country's shadow economy. We also theorize that direct democracy has a greater effect in reducing the informal sector when the former is at low or intermediate values and when the electoral system is characterized by a larger district magnitude. An empirical investigation of a sample of 57 democracies confirms our model's predictions. JEL: O17, P16, H11, H26

This paper investigates the role of the domestic value chain in transmitting the economic impact of Covid-19 lockdown measures. By employing techniques of complex networks analysis and input–output traditional tools, the study identifies those sectors that are key in the complex structure of the Italian supply chain and provides different rankings of the most ‘systemically important’ industries involved in the Covid-19 lockdown. The results suggest that by stopping the production process of many key sectors, the lockdown has led to a drop in input and output that, in turn, has generated a lock of about 52% of total circulating value added, 30% of which has been locked within indirect value chains. Further, by adding sectoral physical proximity indexes to the scenarios analysis, the method developed here provides a tool to guide governments in designing safe and efficient reopening policies.

This paper analyzes the relationships between federalism and the shadow economy. The theoretical analysis leads to the conclusion that the shadow economy is smaller in federal countries than in unitary states. The mobility of individuals among competing jurisdictions leads policy makers to adopt policies that are more efficient in terms of taxation and public good provision. This increases the return for activities in the formal sector relative to those in the informal one, thus reducing activity in the shadow economy. A cross-sectional empirical analysis of a sample of 73 countries confirms this theoretical prediction

This paper puts forward a framework for evaluating the effects of governmental decentralization on the shadow economy and corruption. The theoretical analysis demonstrates that decentralization exerts both a direct and an indirect impact on the shadow economy and corruption. First, decentralization helps to mitigate government-induced distortions, thus limiting the extent of corruption and the informal sector in a direct way. Second, in more decentralized systems, individuals have the option to avoid corruption by moving to other jurisdictions, rather than going underground. This limits the impact of corruption on the shadow economy and implies that decentralization is also beneficial in an indirect way. As a result, our analysis documents a positive relationship between corruption and the shadow economy; however, this link proves to be lower in decentralized countries. To test these predictions, we developed an empirical analysis based on a cross-country database of 145 countries that includes different indexes of decentralization, corruption and shadow economy. The empirical evidence is consistent with the theory

This paper analyzes the relationship between individuals' aversion to ethnic diversity, the degree of fiscal and political decentralization, and tax morale. Our theory is based on the assumption that individuals are risk averse in contributing to the provision of public goods benefiting other ethnic groups, and threfore display a lower tax morale. We find scope for policy intervention-specifically, our model predicts that the effect of individuals' aversion to ethnic diversity on tax morale is smaller or null in decentralized political and fiscal systems relative to centralized ones. The theory highlights the role of decentralization reforms to cut down inter-ethnic redistribution in conflicting environments. We test our results by using individual data from the World Value Survey, and several decentralization measures from Fan et al. (2009). According to our most preferred estimation, a one-scale change in the attitude toward ethnic diversity reduces tax morale of 0.03 in centralized system. We rather find no impact in decentralized states.