Intelligence and shadow economy: A cross-country empirical assessment

This paper empirically assesses the influence of intelligence on a shadow economy, using data from 158 countries, over the period 1999–2007. The results provide strong evidence for the claim that intelligence is negatively associated with an underground economy. This paper establishes that, on average, a one standard deviation increase in IQ is associated with an 8.5 percentage point reduction in a shadow economy relative to GDP. The negative effect of intelligence remains intact when controlled for conventional antecedents of a shadow economy.