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We also found disturbingly large hidden earnings, most likely from corrupt sources, in all areas of government employment. A corrupt government and law enforcement not only lack credibility and moral authority to fight against tax evasion in the private economy; they also have incentives not to fight it seriously so as to increase the sources of their corrupt incomes. This problem will complicate Russia’s push to a more transparent economy for years to come.

But a potentially even more disturbing finding is that corruption seems to be at its worst in the state-run education system. In particular, concerned voices point out that the quality of education is deteriorating sharply. The large gap between the official and estimated earnings of educators that we found corroborates this view, albeit indirectly. The hidden economy is not just affecting Russia’s present generation but also is corrupting its future generations.

Source:
Direct Estimation of Hidden Earnings: Evidence from Russian Administrative Data

Serguey Braguinsky (Carnegie Mellon University), Sergey Mityakov (Clemson University), Andrey Liscovich (Harvard University)

Journal of Law and Economics

Vol. 57, No. 2 (May 2014) , pp. 281-319

Published by: The University of Chicago Press for The Booth School of Business of the University of Chicago and The University of Chicago Law School

Stable URL: http://www.jstor.org/stable/10.1086/675943