1. The NGO called Transparency International (TI) publishes a "Corruption Perceptions Index" (CPI) that ranks countries on a scale of 0 to 10 based on how corrupt their public sector is perceived to be. A score of 0 means highly corrupt, while 10 means very clean. Go to the TI website and find the CPI score of Canada, the U.S., Germany, France, Sweden, Russia, Kazakhstan, Spain, Italy, Greece, Switzerland, Afghanistan, Nigeria, Botswana, South Africa, and any five other countries of your choice (which should give you 20 countries in all). Next, go to the paper by Schneider (2006) that I have posted on Blackboard and refer to table 6.5 which gives the size of the "shadow economy" as a proportion of GDP for year 2002/03 (last column) for more than 100 countries. The shadow economy is that portion of the economy that is unofficial and hence escapes taxation. Use the table to record the size of the shadow economy as a proportion of GDP for each of the 20 countries selected above. Now:
a. Use a spreadsheet program or graph paper to generate a scatter plot with the share of the shadow economy on the vertical axis and the corruption index on the horizontal axis.
b. Based on your scatter plot, discuss whether or not your (admittedly small sample of countries used in this exercise) supports the view that a high level of public sector corruption will contribute to tax evasion via a large shadow economy.
c. Explain how the perception of public sector corruption relates to the "psychological tax contract" concept in the reading by Lars Feld and Bruno Frey.