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Utility-Based Estimation of Labour Supply Functions in the Regular and Irregular Sectors

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Author Info
Lacroix, Guy
Fortin, Bernard

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Abstract

Recent theoretical work on labor supply has shown that the tax and transfer system can induce some individuals to work in the irregular labor market. Models designed to represent such behavior are unable to sign unambiguously the impact of the marginal tax rate as well as many key exogenous parameters on the hours supplied in the irregular market except under strong restrictions on preferences. In this paper, the authors estimate a simultaneous labor supply model that allows testing some of the more common assumptions found in the literature, using a unique data set on the underground economy of the metropolitan area of Quebec City, Canada. Estimates of elasticities with respect to predetermined variables are presented. Moreover, they test and empirically reject the assumptions of perfect substitution between regular and irregular work activities as well as additive separability of the utility function. Copyright 1992 by Royal Economic Society.

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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 102 (1992)
Issue (Month): 415 (November)
Pages: 1407-22
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Handle: RePEc:ecj:econjl:v:102:y:1992:i:415:p:1407-22

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  1. Daniel J. Phaneuf & Catherine L. Kling & Joseph A. Herriges, 1998. "Estimation and Welfare Calculations in a Generalized Corner Solution Model with an Application to Recreation Demand," Center for Agricultural and Rural Development (CARD) Publications 99-wp207, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
    Other versions:
  2. Bernard Fortin & Nadia Joubert & Guy Lacroix, 2002. "Fiscalité, effets de voisinage et offre de travail au noir," Post-Print halshs-00178184_v1, HAL. [Downloadable!]
  3. Guy Lacroix & Natalia Radtchenko, 2008. "The Changing Intra-Household Resource Allocation in Russia," Cahiers de recherche 0811, CIRPEE. [Downloadable!]
    Other versions:
  4. Fortin, Bernard, 2002. "Les enjeux de l'économie souterraine," Cahiers de recherche 0207, CIRPEE. [Downloadable!]
    Other versions:
  5. Graversen, Ebbe Krogh & Smith, Nina, 2002. "Tax Evasion and Work in the Underground Sector," CLS Working Papers 01-2, University of Aarhus, Aarhus School of Business, Centre for Labour Market and Social Research. [Downloadable!]
    Other versions:
  6. Razzolini, Tiziano, 2006. "Study on labor supply when tax evasion is an option with Box-Cox functional forms and random parameters," Memorandum 25/2006, Oslo University, Department of Economics. [Downloadable!]
  7. Bernard Fortin & Guy Lacroix & Claude Montmarquette, 1997. "Are Underground Workers More Likely To Be Underground Consumers?," CIRANO Working Papers 97s-28, CIRANO. [Downloadable!]
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  8. Jørgensen, Øystein & Ognedal, Tone & Strøm, Steinar, 2005. "Labor supply when tax evasion is an option," Memorandum 06/2005, Oslo University, Department of Economics. [Downloadable!]
  9. Erling Barth & Tone Ognedal, 2005. "Unreported Labour," IZA Discussion Papers 1893, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
    • Ognedal, Tone & Barth, Erling, 2005. "Unreported Labour," Memorandum 28/2005, Oslo University, Department of Economics. [Downloadable!]
  10. Lauren M. Rich & Sun-Bin Kim, 2001. "Taxes and Unmarried Fathers' Participation in the Underground Economy," JCPR Working Papers 237, Northwestern University/University of Chicago Joint Center for Poverty Research.
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