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Market and underground activities in a two-sector dynamic equilibrium model

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Author Info
Francesco Busato ()
Bruno Chiarini

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Abstract

In this paper a two sector dynamic general equilibrium model is developed in order to evaluate the implications of the underground economy from a business cycle perspective. There are three main results. First, introducing an underground sector improves the fit of the model to the data, especially along several important labor market dimensions. Second, the model produces substantial internal propagation of temporary shocks. Third, it is shown that underground activities offer risk sharing opportunities by allowing households to smooth income through a proper labor allocation between the two sectors. Copyright Springer-Verlag Berlin/Heidelberg 2004

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File URL: http://hdl.handle.net/10.1007/s00199-003-0400-5
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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 23 (2004)
Issue (Month): 4 (May)
Pages: 831-861
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Handle: RePEc:spr:joecth:v:23:y:2004:i:4:p:831-861

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Related research
Keywords: Two-sector dynamic general equilibrium model; Underground economy; Propagation of shocks; Taxation.;

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  1. Bruno Chiarini & Elisabetta Marzano, 2006. "Market Consumption and Hidden Consumption: A Test for Substitutability," Discussion Papers 12_2006, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!]
  3. Chiarini, Bruno & Marzano, Elisabetta & Schneider, Friedrich, 2008. "Tax Rates and Tax Evasion: An Empirical Analysis of the Structural Aspects and Long-Run Characteristics in Italy," IZA Discussion Papers 3447, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Amedeo Argentiero & Michele Bagella & Francesco Busato, 2008. "Money laundering in a two sector model: using theory for measurement," CEIS Research Paper 128, Tor Vergata University, CEIS, revised 09 Sep 2008. [Downloadable!]
    Other versions:
  5. Elisabetta Marzano, 2004. "Dual Labour Market Theories And Irregular Jobs: Is There a Dualism Even in The Irregular Sector?," CELPE Discussion Papers 81, CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy. [Downloadable!]
  6. Bruno Chiarini & Elisabetta Marzano, 2007. "Structural and Cyclical Patterns of Underground Labour Input in Italy from 1980 to 2004," Discussion Papers 3_2007, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
  7. Francesco Busato & Bruno Chiarini, 2009. "Steady state Laffer curve with the underground economy," Discussion Papers 2_2009, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
  8. Francesco Busato & Bruno Charini & Enrico Marchetti, 2004. "Indeterminacy, Underground Activities and Tax Evasion," Economics Working Papers 2004-12, School of Economics and Management, University of Aarhus. [Downloadable!]
    Other versions:
  9. 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. [Downloadable!]
  10. Busato; Francesco & Bruno Chiarini & Vincenzo di Maro, 2005. "Directional Congestion and Regime Switching in a Long Memory Model for Electricity Prices," Economics Working Papers 2005-19, School of Economics and Management, University of Aarhus. [Downloadable!]
  11. Francesco Busato, Bruno Chiarini, Pasquale de Angelis, Elisabetta Marzano, 2005. "Capital Subsidies and Underground Production," CELPE Discussion Papers 96, CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy. [Downloadable!]
    Other versions:
  12. Maurizio Bovi & Peter Claeys, 2008. "Treasury V Dodgers. A Tale of Fiscal Consolidation and Tax Evasion," ISAE Working Papers 93 Classification-JEL E62, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
  13. Maurizio Bovi, 2006. "The Cyclical Behavior of Shadow and Regular Employment," ISAE Working Papers 62, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
    Other versions:
  14. 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. [Downloadable!]
  15. Bruno Chiarini & Marco Di Domizio & Elisabetta Marzano, 2008. "Why do underground reducing policies often fail their scope? Some answers from the Italian experience," Working Papers 8_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
    Other versions:
  16. Bruno Chiarini & Elisabetta Marzano, 2008. "Interaction between Underground Employment and Unions in selected Italian industries," Working Papers 6_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
  17. Zoe Kuehn, 2007. "Tax rates, governance, and the informal economy in high-income countries," Economics Working Papers we078551, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  18. Francesco Busato & Enrico Marchetti, 2006. "Skills, sunspots and cycles," Economics Working Papers 2006-07, School of Economics and Management, University of Aarhus. [Downloadable!]
    Other versions:
  19. Francesco Busato, 2004. "Relative Demand Shocks," Economics Working Papers 2004-11, School of Economics and Management, University of Aarhus. [Downloadable!]
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