The Strenght of the Relationship Between Shadow Economy and Corruption: Evidence from a Worldwide Country-Sample

Using data from 193 countries and territories, the present study investigates the strength of the relationship between shadow economy and corruption via moderation analysis. The literature reports a rather ambiguous relationship between the two variables. By running four multiple regression models with the bootstrapping technique and judicial independence, reliability of police services, human development and business freedom as moderating variables, we show that shadow economy and corruption are complements. Our study suggests that, when nations have judiciaries free from political influence, enforce law efficiently while protecting social interests, register significant progress in human development (e.g., improved education, proper healthcare and living standards) or efficiently regulate the business environment by minimizing red tape and thus facilitating economic transactions, a small shadow economy is associated with a low corruption level.