Democratic Resilience, Corruption and Informality in High-Income Democracies: Economic Freedom and the Limits of Institutional Inclusion

<title>Abstract</title> <p>Why do some high-income democracies remain vulnerable to democratic quality erosion despite economic openness and formal institutional consolidation? This article examines how perceived corruption and the shadow economy condition the relationship between economic freedom and democratic quality. Drawing on the distinction between inclusive and extractive institutions, it argues that economic freedom does not automatically strengthen democracy. Where public authority is perceived as impartial and corruption is low, market openness may reinforce formal participation, accountability and institutional trust. Where corruption and informality persist, however, economic freedom may coexist with unequal access, rent-seeking and institutional withdrawal. Using a country-year panel of high-income democracies between 2000 and 2017, the article tests whether corruption and the shadow economy moderate the relationship between economic freedom and V-Dem democratic quality indicators. The results provide mixed but theoretically informative evidence: economic freedom does not display a robust automatic democratic dividend once country and year fixed effects are introduced, while corruption and informality remain important diagnostic signals of institutional fragility. The article contributes to debates on democratic resilience by theorizing the shadow economy as an early-warning indicator of weakened state-society reciprocity in affluent democracies.</p>