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Social Norm, the Informal Sector, and Unemployment

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  • Ann-Sofie Kolm
  • Birthe Larsen

Abstract

In examining the macroeconomic effects of increased government control of the informal sector, this paper develops a two-sector general-equilibrium model featuring matching frictions on the labor market and a social norm. Conducting informal work, or employing a worker informally, is associated with expected fines and payments of a moral cost, given that there is a social norm against tax evasion. This framework facilitates an analysis of how wage setting, unemployment, and the size of the informal sector are affected by punishment policies, which has been ignored in the previous literature. Furthermore, the inclusion of an endogenously determined norm against tax evasion may explain interregional differences in relative sizes of the formal and the informal sectors for similar tax and punishment systems.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 59 (2002/2003)
Issue (Month): 3 (August)
Pages: 407-

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(2002/200308)59:3_407:sntisa_2.0.tx_2-j

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References

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  1. Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers dp0361, Centre for Economic Performance, LSE.
  2. Wen-Ya Chang & Ching-Chong Lai, 1996. "The Implication of Efficiency Wages On Tax Evasion and Tax Collections," Public Finance Review, , vol. 24(2), pages 163-172, April.
  3. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470 Elsevier.
  4. Namkee Ahn & Sara La De Rica, 1997. "The underground economy in Spain: an alternative to unemployment?," Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 733-743.
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Citations

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Cited by:
  1. Kolm, Ann-Sofie & Larsen, Birthe, 2001. "Wages, Unemployment, and the Underground Economy," Working Paper Series 2001:8, Uppsala University, Department of Economics.
  2. James Albrecht & Lucas Navarro & Susan Vroman, 2006. "The Effects of Labor Market Policies in an Economy with an Informal Sector," Working Papers gueconwpa~06-06-06, Georgetown University, Department of Economics.
  3. Hartmut Lehmannan & Tiziano Razzolini & Anzelika Zaiceva, 2012. "Job separations, job loss and informality in the Russian labor marke," Center for Economic Research (RECent) 076, University of Modena and Reggio E., Dept. of Economics.
  4. Gabriele Ruiu & Gaetano Lisi, 2011. "Tax Morale, Slippery-Slope Framework and Tax Compliance: A Cross-section Analysis," Working Papers 2011-05, Universita' di Cassino, Dipartimento di Scienze Economiche.
  5. Lehmann, Hartmut & Razzolini, Tiziano & Zaiceva, Anzelika, 2011. "Job Separations and Informality in the Russian Labor Market," IZA Discussion Papers 6230, Institute for the Study of Labor (IZA).
  6. Gaetano Lisi & Maurizio Pugno, 2011. "Tax Morale, Entrepreneurship, and the Irregular Economy," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 5(2), pages 116-131, August.
  7. Nikolai Stähler, 2005. "Employment protection : its effects on different skill groups and on the incentive to become skilled," Working Papers of the Research Group Heterogenous Labor 05-07, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
  8. Kolml, Ann-Sofie & Larsen, Birthe, 2010. "The Black Economy and Education," Research Papers in Economics 2010:3, Stockholm University, Department of Economics.
  9. Kolm, Ann-Sofie & Larsen, Birthe, 2003. "Does Tax Evation Affect Unemployment and Educational Choice?," Working Paper Series 2003:22, Uppsala University, Department of Economics.

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