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Search and Taxation in a Model of Underground Economic Activities

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Author Info

  • Dan Anderberg
  • Alessandro Balestrino
  • Umberto Galmarini

Abstract

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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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 41 (2003)
Issue (Month): 4 (October)
Pages: 647-659

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Handle: RePEc:oup:ecinqu:v:41:y:2003:i:4:p:647-659

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Cited by:
  1. Alessandro Balestrino, . "Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect," EPRU Working Paper Series 05-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Dec 2005.
  2. George M. Georgiou, 2007. "Measuring the Size of the Informal Economy: A Critical Review," Working Papers 2007, Central Bank of Cyprus.
  3. Dan Anderberg, 2003. "Insiders, Outsiders, and the Underground Economy," CESifo Working Paper Series 1048, CESifo Group Munich.
  4. Francesco Busato & Bruno Chiarini & Pasquale de Angelis & Elisabetta Marzano, 2005. "Capital Subsidies and the Underground Economy," Economics Working Papers 2005-10, School of Economics and Management, University of Aarhus.
  5. Balestrino, Alessandro, 2010. "Tax avoidance and the endogenous formation of social norms," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(5), pages 601-609, October.
  6. 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.
  7. Bouwe Dijkstra, . "Good And Bad Equilibria With The Informal Sector," Discussion Papers 06/01, University of Nottingham, School of Economics.
  8. Francesco Busato & Bruno Chiarini & Pasquale De Angelis & Elisabetta Marzano, 2008. "Firm-oriented policies, tax cheating and perverse outcomes," Discussion Papers 10_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
  9. Bouwe R. Dijkstra, 2011. "Good and Bad Equilibria with the Informal Sector," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(4), pages 668-685, December.
  10. 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.

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