Wages, Unemployment, and the Underground Economy
AbstractWhile examining the macroeconomic effects of increased government control of the informal sector, this paper develops a two-sector general equilibrium model featuring matching frictions and worker-firm wage bargaining. Workers search for jobs in both the formal and the informal sector. We analyse the impact of higher punishment rates and a higher audit rate on labour market performance. We find that a higher punishment rate reduces the size of the informal sector and reduces unemployment. A higher audit rate has an ambiguous impact on unemployment, and may actually increase the size of the underground economy.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1086.
Date of creation: 2003
Date of revision:
tax evasion; underground economy; matching; bargaining; unemployment;
Other versions of this item:
- Kolm, Ann-Sofie & Larsen, Birthe, 2001. "Wages, Unemployment, and the Underground Economy," Working Paper Series 2001:8, Uppsala University, Department of Economics.
- Kolm, A.S. & Larsen, B., 2001. "Wages, Unemployment, and the Underground Economy," Papers 2001:08, Uppsala - Working Paper Series.
- Kolm, Anne-Sofie & Larsen, Birthe, 2003. "Wages, unemployment, and the underground economy," Working Papers 11-2003, Copenhagen Business School, Department of Economics.
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-02 (All new papers)
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