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Are Underground Workers More Likely To Be Underground Consumers?

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  • Bernard Fortin

    ()

  • Guy Lacroix

    ()

  • Claude Montmarquette

    ()

Abstract

This paper investigates the effect of working in the underground sector on the level of individual underground expenditures. We show that it can be decomposed into a network effect, a non-separability effect and an income effect. Our empirical analysis uses micro data from a randomized survey conducted in the province of Québec for 1993. GMM methods allow us to take into account censoring and measurement error on the dependent variable as well as the possible endogeneity of the conditioning labor supply variables. We find that an increase in the underground labor supply has a strong positive effect on the level of underground expenditures. This relationship amplifies the impact of tax policy and of the enforcement system on the size of the underground economy. Cet article étudie les effets du travail au noir sur le niveau des achats au noir des individus. On montre qu'il peut se décomposer en un effet de réseau, un effet de non-séparabilité et un effet revenu. Notre analyse empirique utilise des micro-données tirées d'une enquête réalisée au Québec pour l'année 1993. La méthode des moments généralisés nous permet de tenir compte de la censure et des erreurs de mesure sur la variable dépendante ainsi que de l'endogénéité des variables d'offre de travail qui conditionnent les décisions de consommation. Selon nos résultats, une hausse de l'offre de travail au noir accroît de façon importante le niveau des dépenses au noir. Cet effet amplifie l'impact des politiques de taxation et de contrôle fiscal sur la taille de l'économie souterraine.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 97s-28.

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Date of creation: 01 Jun 1997
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Handle: RePEc:cir:cirwor:97s-28

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Keywords: Underground consumption; underground work; separability; policy impacts; GMM estimations; Consommation au noir; travail au noir; séparabilité; impact des politiques; estimations par la méthode des moments généralisés;

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  1. Andersen, Per, 1977. " Tax Evasion and Labor Supply," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(3), pages 375-83.
  2. Browning, M J, 1983. "Necessary and Sufficient Conditions for Conditional Cost Functions," Econometrica, Econometric Society, vol. 51(3), pages 851-56, May.
  3. Neary, J. P. & Roberts, K. W. S., 1980. "The theory of household behaviour under rationing," European Economic Review, Elsevier, vol. 13(1), pages 25-42, January.
  4. Lacroix, G. & Fortin, B., 1991. "Utility-Based Estimation of Labor Supply Functions in the Regular and Irregular Sectors," Cahiers de recherche 9020, Université Laval - Département d'économique.
  5. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-63, June.
  6. MacKinnon, James G. & White, Halbert, 1985. "Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties," Journal of Econometrics, Elsevier, vol. 29(3), pages 305-325, September.
  7. Dan Usher, 1986. "Tax Evasion and the Marginal Cost of Public Funds," Working Papers 637, Queen's University, Department of Economics.
  8. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  9. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-87, October.
  10. Cowell, Frank A., 1985. "Tax evasion with labour income," Journal of Public Economics, Elsevier, vol. 26(1), pages 19-34, February.
  11. Kesselman, Jonathan R., 1989. "Income tax evasion : An intersectoral analysis," Journal of Public Economics, Elsevier, vol. 38(2), pages 137-182, March.
  12. Wales, T. J. & Woodland, A. D., 1983. "Estimation of consumer demand systems with binding non-negativity constraints," Journal of Econometrics, Elsevier, vol. 21(3), pages 263-285, April.
  13. Lemieux, Thomas & Fortin, Bernard & Frechette, Pierre, 1994. "The Effect of Taxes on Labor Supply in the Underground Economy," American Economic Review, American Economic Association, vol. 84(1), pages 231-54, March.
  14. Pollak, Robert A, 1969. "Conditional Demand Functions and Consumption Theory," The Quarterly Journal of Economics, MIT Press, vol. 83(1), pages 60-78, February.
  15. Browning, Martin & Meghir, Costas, 1991. "The Effects of Male and Female Labor Supply on Commodity Demands," Econometrica, Econometric Society, vol. 59(4), pages 925-51, July.
  16. Stapleton, David C & Young, Douglas J, 1984. "Censored Normal Regression with Measurement Error on the Dependent Variable," Econometrica, Econometric Society, vol. 52(3), pages 737-60, May.
  17. Cowell, F A, 1990. "Tax Sheltering and the Cost of Evasion," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 231-43, January.
  18. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.
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Cited by:
  1. Piolatto, A., 2010. "Itemised Deductions: A Device to Reduce Tax Evasion," Discussion Paper 2010-60, Tilburg University, Center for Economic Research.
  2. Tilman Brück & John P. Haisken-DeNew & Klaus F. Zimmermann, 2003. "Creating Low Skilled Jobs by Subsidising Market-Contracted Household Work," Discussion Papers of DIW Berlin 387, DIW Berlin, German Institute for Economic Research.
  3. Casola, Luca & Kemp, Simon & Mackenzie, Alexander, 2009. "Consumer decisions in the black market for stolen or counterfeit goods," Journal of Economic Psychology, Elsevier, vol. 30(2), pages 162-171, April.
  4. 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.
  5. Thiele, Rainer & Böhme, Marcus, 2011. "Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals," Proceedings of the German Development Economics Conference, Berlin 2011 76, Verein für Socialpolitik, Research Committee Development Economics.
  6. François Gardes & Christophe Starzec, 2009. "Polish households' behavior in the regular and informal economies," Documents de travail du Centre d'Economie de la Sorbonne 09017, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  7. Benoit Dostie & Désiré Vencatachellum, 2004. "Compulsory and Voluntary Remittances: Evidence from Child Domestic Workers in Tunisia," Cahiers de recherche 04-04, HEC Montréal, Institut d'économie appliquée.
  8. 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.
  9. Marcus Böhme, Rainer Thiele, 2012. "Informal-formal Linkages and Informal Enterprise Performance in Urban West Africa," Kiel Working Papers 1751, Kiel Institute for the World Economy.
  10. Jan Hanousek & Filip Palda, 2002. "The Evolution of Tax Evasion in the Czech Republic: A Markov Chain Analysis," Public Economics 0205002, EconWPA.

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