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
