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Income Tax Evasion in a Unionised Labour Market

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  • Laszlo Goerke

Abstract

Labour market outcomes can depend on tax evasion since the returns from working are affected by the amount of taxes paid. In this paper, unionised workers are assumed to select the income which they declare. The rational trade union takes this decision into account. It is shown that the employment effects of a linear income tax are not altered qualitatively by tax evasion if the fine for evasion is a function only of the evaded tax. Moreover, the consequences of changes in the tax enforcement system are determined by the ability to choose evasion activities optimally. The existence of unrestricted tax evasion opportunities lowers wages.

Suggested Citation

  • Laszlo Goerke, 2003. "Income Tax Evasion in a Unionised Labour Market," Australian Economic Papers, Wiley Blackwell, vol. 42(2), pages 135-148, June.
    • Handle: RePEc:bla:ausecp:v:42:y:2003:i:2:p:135-148
    DOI: 10.1111/1467-8454.00191
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