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Tax Evasion and Work in the Underground Sector

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  • Graversen, Ebbe Krogh

    (Centre for Labour Market and Social Research, Aarhus School of Business)

  • Smith, Nina

    ()
    (Centre for Labour Market and Social Research, Aarhus School of Business)

Abstract

A bivariate random effect panel data model is estimated for labour supply in the taxable and the non-taxable sectors in Denmark. The results show that wage rates and non-labour income have significant effects on labour supply in both sectors. For men, income taxes seem to twist the labour supply away from taxed regular to untaxed underground supply. For men, the average own wage elasticity with respect to underground labour supply is 0.3 while the cross price elasticity from wages is -0.6 and the income elasticity is -0.1. For women the results are more mixed.

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Bibliographic Info

Paper provided by University of Aarhus, Aarhus School of Business, Centre for Labour Market and Social Research in its series CLS Working Papers with number 01-2.

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Length: 22 pages
Date of creation: 27 Jun 2002
Date of revision:
Handle: RePEc:hhs:aarcls:2001_002

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Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Phone: +45 89 48 66 88
Fax: + 45 86 15 01 88
Web page: http://www.cls.dk
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Keywords: Labour supply; Tax evasion; Censored bivariate panel data model.;

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References

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  1. 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.
  2. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484, December.
  3. Hausman, Jerry & Ruud, Paul, 1984. "Family Labor Supply with Taxes," American Economic Review, American Economic Association, vol. 74(2), pages 242-48, May.
  4. 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.
  5. Namkee Ahn & Sara La De Rica, 1997. "The underground economy in Spain: an alternative to unemployment?," Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 733-743.
  6. Bernard Fortin & Thomas Lemieux & Pierre Frechette, 1990. "An Empirical Model of Labor Supply in the Underground Economy," NBER Working Papers 3392, National Bureau of Economic Research, Inc.
  7. Fortin, Nicole M, 1995. "Allocation Inflexibilities, Female Labor Supply, and Housing Assets Accumulation: Are Women Working to Pay the Mortgage?," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 524-57, July.
  8. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  9. Graversen, E.K. & Smith, N., 1998. "Labour Supply, Overtime Work and Taxation in Denmark," Papers 98-06, Centre for Labour Market and Social Research, Danmark-.
  10. van Eck, Robert & Kazemier, Brugt, 1988. "Features of the Hidden Economy in the Netherlands," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(3), pages 251-73, September.
  11. Cowell, Frank A., 1985. "Tax evasion with labour income," Journal of Public Economics, Elsevier, vol. 26(1), pages 19-34, February.
  12. Friedrich Schneider & Dominik Enste, 2000. "Shadow Economies Around the World," IMF Working Papers 00/26, International Monetary Fund.
  13. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
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Cited by:
  1. Koziarivska Larysa & Oliinyk Andrii, 2006. "Effects of the 2004 Personal Income Tax System Reform on the Shadow Sector in Ukraine," EERC Working Paper Series 06-08e, EERC Research Network, Russia and CIS.
  2. Doerrenberg, Philipp & Duncan, Denvil, 2012. "Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply," IZA Discussion Papers 6914, Institute for the Study of Labor (IZA).
  3. Matsaganis, Manos & Benedek, Dóra & Flevotomou, Maria & Lelkes, Orsolya & Mantovani, Daniela & Nienadowska, Sylwia, 2010. "Distributional implications of income tax evasion in Greece, Hungary and Italy," MPRA Paper 21465, University Library of Munich, Germany.
  4. Catalina Granda-Carvajal, 2012. "Macroeconomic Implications of the Underground Sector: Challenging the Double Business Cycle Approach," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 42(2), pages 237-256, September.
  5. Cichocki, Stanislaw & Tyrowicz, Joanna, 2009. "Shadow Employment in Transition - A Matter of Choice or No Choice?," MPRA Paper 15464, University Library of Munich, Germany.
  6. Manos Matsaganis & Maria Flevotomou, 2010. "Distributional implications of tax evasion in Greece," LSE Research Online Documents on Economics 26074, London School of Economics and Political Science, LSE Library.
  7. Bernard Fortin & Nadia Joubert & Guy Lacroix, 2004. "Offre de travail au noir en présence de la fiscalité et des contrôles fiscaux," Économie et Prévision, Programme National Persée, vol. 164(3), pages 145-163.
  8. Cichocki, Stanislaw & Tyrowicz, Joanna, 2010. "Shadow employment in post-transition--Is informal employment a matter of choice or no choice in Poland?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(4), pages 527-535, August.
  9. Roff, Jennifer & Lugo-Gil, Julieta, 2012. "A model of child support and the underground economy," Labour Economics, Elsevier, vol. 19(5), pages 668-681.

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