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Entrepreneurship and the Hidden Economy: An Extended Matching Model

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  • Gaetano Lisi
  • Maurizio Pugno

Abstract

This paper develops a labour market matching model in order to address the problem of the persistence of the hidden sector and of its regional concentration, as in Italy and in the enlarged Europe. The main novel features of the model are that entrepreneurial ability affects job productivity, and that regular firms receive negative externalities from the hidden sector, which may capture the pressure typically exerted by corruption and organised crime, and positive externalities from the other regular firms. At least one interior equilibrium emerges, thus providing an explanation for the so-called 'shadow puzzle', with the possibility that tougher monitoring may reduce both the hidden sector and unemployment. If externalities are non-linear, two equilibria may emerge, thus accounting for regional dualism. The 'better' equilibrium is in fact characterised by a smaller hidden sector, higher levels of overall productivity, output, entrepreneurial ability used, extra-profits, relative wages, and more favourable externalities.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 24 (2010)
Issue (Month): 4 ()
Pages: 587-605

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Handle: RePEc:taf:intecj:v:24:y:2010:i:4:p:587-605

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Related research

Keywords: Entrepreneurship; hidden economy; shadow economy; underground economy; matching models;

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References

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Citations

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Cited by:
  1. Lisi, G., 2011. "Entrepreneurship, On-the-job Search and Informal Jobs," Journal of the New Economic Association, New Economic Association, issue 9, pages 33-46.
  2. Gaetano Lisi & Maurizio Pugno, 2010. "The Underground Economy in a Matching Model of Endogenous Growth," Working Papers 2010-07, Universita' di Cassino, Dipartimento di Scienze Economiche.
  3. Gaetano Lisi & Maurizio Pugno, 2011. "Tax Morale, Entrepreneurship, and the Irregular Economy," Working Papers 2011-01, Universita' di Cassino, Dipartimento di Scienze Economiche.

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