Can Fiscal Decentralization Strengthen Social Capital PDF Download

The study at hand gives a new approach for explaining the existence of shadow economy by forming a regression model with the size of shadow economy as a dependent variable and indicators of social capital and fiscal decentralization as independent variables. For shadow economy data, MIMIC model results from Friedrich Schneider et al. were used, whereas the World Values Survey and the European Values Study delivered data on social capital. Fiscal decentralization was described with government finance statistics from the IWF. Methodically, the model bases on an OLS regression including several indicators for social capital and fiscal decentralization and also interaction terms between these two. Results show that the influence of social capital is of a mixed nature: whereas the membership in some organizations has a positive effect on the existence of shadow economy, other organizations are more likely to have a negative impact. Trust as an important indicator seems to have a negative relation to shadow economy, in general. Furthermore, fiscal decentralization appears to enforce a generally positive effect of memberships on the shadow economy, whereas the negative influence on trust increases with fiscal decentralization.