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AbstractThis paper considers an alternate dimension of government institutions associated with the separation of powers between government and its central bank. A more independent central bank is consistent with greater institutional quality and constraints on government. We propose that central bank independence influences the prevalence of the shadow, or underground, economy. Using cross‐country panel data for over 100 nations over the period 1991 to 2012, the results from instrumental variables techniques show that central bank independence curbs underground economic activity. Furthermore, considering different dimensions of independence, we find that independence related to central bank CEO, policy formation, and central bank lending are effective at checking the shadow sector. Overall, these findings are robust to a different measure of the underground economy, correcting for the potential influence of outliers, controlling for the impact of additional factors, accounting for heterogeneity related to the level of development, and considering the heterogeneity related to the prevalence of the shadow sector. The main implication of the results is that nations seeking to reduce the prevalence of the underground economy would benefit from policies that promote central bank independence.

AbstractThis paper examines convergence among cross‐country shadow economies. Using the Phillips‐Sul (2007, 2009) club convergence approach and data for over 150 countries from 1991 to 2017, the results show evidence against absolute convergence for all shadow economies; however, we find evidence of multiple convergence clubs. In particular, we find evidence for seven distinct convergence clubs and six divergent shadow economies. Each club is characterised by an increasingly larger shadow economy with the countries in club 1 having the largest shadow economy and those in club 7 having the smallest shadow economy. Using a two‐way fixed effects approach, we also find that the determinants of the shadow economy are somewhat conditional on the convergence club. The existence of multiple equilibria suggests that policy makers in their attempt to combat the shadow economy would benefit by considering the different transitional paths associated with the different convergence clubs.

Using recent data on the unvaccinated across U.S. states, this paper focuses on the determinants of vaccine hesitancy related to the COVID-19 pandemic. Results show that more prosperous states and states with more elderly and physicians have lower vaccine hesitancy. There was some evidence of the significance of race, but internet access and history of other contagious diseases failed to make a difference. States with centralized health systems and those with mask mandates generally had a lower percentage of unvaccinated populations. Finally, the presence of Democrats in state legislatures tended to result in lower vaccination hesitancies, ceteris paribus.

Using cross‐country data this paper examines the spillovers of corruption to formal and informal entrepreneurship in neighboring countries. Whereas research has shown that entrepreneurs move underground to escape corruption, we argue that entrepreneurs may also seek refuge in neighboring countries. Indeed, the empirical results show that in response to a ceteris paribus increase in corruption in neighboring countries formal entrepreneurship increases in the home country with no effect on informal entrepreneurship. This is consistent with entrepreneurs circumventing corrupt public officials by immigrating to countries with presumably less corruption. These results withstand a battery of robustness checks. (JEL D73, L26)

Using data across U.S. states over a recent decade, this paper uniquely uses three qualitatively different measures of entrepreneurship to examine the knowledge flows from patents, paying attention to the dynamic nature of such influences. We find that there are significant variations in the effects of knowledge flows across entrepreneurship types and, in general, these effects are not immediate. The greatest positive effect of knowledge spillovers is on startup entrepreneurship and the resulting magnitude grows somewhat over time. The spillovers are modest on overall entrepreneurship, while entrepreneurs who were previously employed see more immediate benefits. These findings are generally robust. (JEL L26, O33, O51, M21)

This paper examines the relative effectiveness of cross‐national virtual decentralization and physical decentralization of government functions on corruption and the shadow economy. Results show that while virtual decentralization reduces both corruption and the shadow economy, physical decentralization reduces only the shadow economy. The e‐government results are robust to alternate measures and specifications, while those of government tiers are not.

This paper studies the effects of various forms of government decentralization on institutional quality across countries. Using corruption and the shadow economy to proxy for institutional quality, as well as three forms of government decentralization (i.e., virtual, physical, and fiscal), the econometric results show virtual decentralization to be the most effective in improving institutional quality. The effects on transition and countries in Asia are also considered.