We develop a simple model of an economy with underground production and trade. Because of the furtive nature of underground activities, information about trading opportunities in the irregular sector is less than perfect--hence, agents devote some time to locate trading partners in the black economy and then bargain over the terms of trade. The model stresses how individual involvement in underground economic activities is related to earnings capacity. It also highlights how taxes and tax enforcement are natural policy complements. Both results are argued to be useful when interpreting micro- and aggregate-level data on underground economic activities. (JEL H26, H21, D72, D83) Copyright 2003, Oxford University Press.
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Article provided by Oxford University Press in its journal Economic Inquiry.
Volume (Year): 41 (2003) Issue (Month): 4 (October) Pages: 647-659 Download reference. The following formats are available: HTML,
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Keywords:
Find related papers by JEL classification: H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Bruno Chiarini & Elisabetta Marzano & Francesco Busato & Pasquale De Angelis, 2007.
"State Aid Policies and Underground Activities,"
Discussion Papers
4_2007, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
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