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Are Underground Workers More Likely to be Underground Consumers?

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  • Fortin, Bernard
  • Lacroix, Guy
  • Montmarquette, Claude

Abstract

We investigate the impact of working in the underground sector on the demand for underground commodities. Using a tax evasion model with costly information, we show that the presence of a network effect encourages underground workers to purchase underground commodities. The model is estimated using a unique Canadian microdata set for 1993. An increase in underground hours of work has a strong positive effect on the probability of purchasing underground commodities and on the level of expenditures. This relationship has a sizable effect on the impact of tax and enforcement parameters on the level of the underground economy.

Suggested Citation

  • Fortin, Bernard & Lacroix, Guy & Montmarquette, Claude, 2000. "Are Underground Workers More Likely to be Underground Consumers?," Economic Journal, Royal Economic Society, vol. 110(466), pages 838-860, October.
    • Handle: RePEc:ecj:econjl:v:110:y:2000:i:466:p:838-60
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    Cited by:

    1. François Gardes & Christophe Starzec, 2009. "Polish Households' Behavior in the Regular and Informal Economies," Revue économique, Presses de Sciences-Po, vol. 60(5), pages 1181-1210.
    2. Böhme, Marcus & Thiele, Rainer, 2012. "Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals," World Development, Elsevier, vol. 40(7), pages 1369-1381.
    3. Piolatto Amedeo, 2015. "Itemised Deductions: A Device to Reduce Tax Evasion," German Economic Review, De Gruyter, vol. 16(4), pages 422-438, December.
    4. Montalvo, José G. & Piolatto, Amedeo & Raya, Josep, 2020. "Transaction-tax evasion in the housing market," Regional Science and Urban Economics, Elsevier, vol. 81(C).
    5. Arbex, Marcelo, 2013. "Tax enforcement policies, tax evasion and time allocation," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(3), pages 285-293.
    6. Philippe Adair, 2012. "The Non-Observed Economy in the European Union Countries (EU-15): A Comparative Analysis of Estimates," Chapters, in: Michael Pickhardt & Aloys Prinz (ed.), Tax Evasion and the Shadow Economy, chapter 5, Edward Elgar Publishing.
    7. Bruno Chiarini & Elisabetta Marzano, 2006. "Market consumption and hidden consumption. A test for substitutability," Applied Economics, Taylor & Francis Journals, vol. 38(6), pages 707-716.
    8. Marcus H Böhme & Rainer Thiele, 2014. "Informal–Formal Linkages and Informal Enterprise Performance in Urban West Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 26(4), pages 473-489, September.
    9. Jan Hanousek & Filip Palda, 2002. "The Evolution of Tax Evasion in the Czech Republic: A Markov Chain Analysis," Public Economics 0205002, University Library of Munich, Germany.
    10. Gerasimos T SOLDATOS, 2015. "Indirect Tax Incidence under Inelastic Underground Economy Demand," Journal of Economics and Behavioral Studies, AMH International, vol. 7(3), pages 56-62.
    11. Philippe Adair, 2009. "Économie non observée et emploi informel dans les pays de l'Union européenne. Une comparaison des estimations et des déterminants," Revue économique, Presses de Sciences-Po, vol. 60(5), pages 1117-1153.
    12. Soldatos, Gerasimos, 2014. "Indirect Tax Incidence under Inelastic Underground Economy Demand," MPRA Paper 64598, University Library of Munich, Germany.
    13. repec:tiu:tiucen:201060 is not listed on IDEAS
    14. Casola, Luca & Kemp, Simon & Mackenzie, Alexander, 2009. "Consumer decisions in the black market for stolen or counterfeit goods," Journal of Economic Psychology, Elsevier, vol. 30(2), pages 162-171, April.
    15. Amedeo Piolatto, 2015. "Itemised Deductions: A Device to Reduce Tax Evasion," German Economic Review, Verein für Socialpolitik, vol. 16(4), pages 422-438, November.
    16. Jan Hanousek & Filip Palda, 2008. "Tax Evasion Dynamics in the Czech Republic: First Evidence of an Evasional Kuznets Curve," CERGE-EI Working Papers wp360, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    17. Tilman Bruck & John P. Haisken-De New & Klaus Zimmermann, 2006. "Creating low skilled jobs by subsidizing market-contracted household work," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 899-911.
    18. Benoit Dostie & Désiré Vencatachellum, 2004. "Compulsory and Voluntary Remittances: Evidence from Child Domestic Workers in Tunisia," Cahiers de recherche 04-04, HEC Montréal, Institut d'économie appliquée.
    19. François Gardes & Christophe Starzec, 2009. "Polish Households' behavior in the Regular and Informal Economies," Post-Print halshs-00375543, HAL.
    20. François Gardes & Christophe Starzec, 2009. "Polish Households' Behavior in the Regular and Informal Economies," Post-Print halshs-00449447, HAL.

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    More about this item

    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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