Abstract
This paper investigates the missing link between multi-dimensional components of social capital and the size of the shadow economy, an association generally considered to be ambiguous. A simple agency model shows that social capital and the shadow economy are connected through a mechanism reducing the perceived level of corruption. Using a sample of 65 countries, 1999 to 2007, the paper finds that social trust, social norms (e.g. tax morale), and a broad index of social capital are robust, negative determinants of the shadow economy.
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