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MARIA BERRITTELLA

CAN PUBLIC EDUCATION EXPENDITURE REDUCE THE SHADOW ECONOMY?

Abstract

This paper empirically examines whether devoting more resources to education can reduce the size of the shadow economy on a cross-section of countries. The findings show a negative relationship between public education expenditure and the size of the shadow economy, which is robust to the inclusion of different proxies for the control variables, a large set of policy variables and regional differences. The findings also suggest that an increase in educational attainment can reduce the size of the shadow economy.