Insiders, Outsiders, and the Underground Economy
AbstractThis paper considers whether labour market rigidities lead to more underground economic activities. This is suggested by aggregate cross-country data which show that underground economic activities are more strongly correlated with a commonly used index of employment protection than with effective tax rates. A simple theoretical model is constructed to support this finding. The model, contrary to many models of equilibrium unemployment in the literature, also has the feature that a rise in a proportional tax affects employment (in addition to underground economic activities).
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1048.
Date of creation: 2003
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-02 (All new papers)
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