The Political Economy of Governmental Corruption: The Logic of Underground Government

THERE is little doubt that taxes create incentives for tax evasion. Illegal underground markets arise in the private sector, and today evidence is mounting that the tax-induced underground economy is very large and growing, in the United States and in other parts of the world.' It is also widely recognized that regulatory constraints, like taxes, induce privatesector underground activity. This is evidenced by the thriving markets in drugs, prostitution, gambling, stolen goods, and the labor of illegal aliens, all in the teeth of laws forbidding the sale or purchase of these goods and