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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

Contact details of provider:
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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Related research

Keywords: Labour supply; Tax evasion; Censored bivariate panel data model.;

Other versions of this item:

Find related papers by JEL classification:

• C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
• C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
• H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
• J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

This paper has been announced in the following NEP Reports:

• NEP-ALL-2002-07-04 (All new papers)
• NEP-PBE-2002-07-04 (Public Economics)

References

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1. Frederiksen, Anders & Graversen, Ebbe Krogh & Smith, Nina, 2001. "Overtime work, dual job holding and taxation," Working Papers 01-7, University of Aarhus, Aarhus School of Business, Department of Economics.
   
   • Frederiksen, A. & Graversen, E.K. & Smith, N., 2001. "Overtime Work, Dual Job Holding and Taxation," Papers 01-7, Aarhus School of Business - Department of Economics.
   • Frederiksen, Anders & Graversen, Ebbe K. & Smith, Nina, 2001. "Overtime Work, Dual Job Holding and Taxation," IZA Discussion Papers 323, Institute for the Study of Labor (IZA).
2. Fortin, N.M., 1992. "Allocation Inflexibilities , Female Labor Supply and Housing Assets Accumulation: Are Women Working to Pay the Mortagage," Cahiers de recherche 9204, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
   
   • 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.
   • Fortin, N.M., 1992. "Allocation Inflexibilities , Female Labor Supply and Housing Assets Accumulation: Are Women Working to Pay the Mortagage," Cahiers de recherche 9204, Universite de Montreal, Departement de sciences economiques.
3. Friedrich Schneider & Dominik Enste, 2000. "Shadow Economies Around the World - Size, Causes, and Consequences," IMF Working Papers 00/26, International Monetary Fund.
   
   • Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
4. 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.
   
   • Fortin, B. & Lemieux, T. & Frechette, P., 1990. "An Empirical Model Of Labor Supply In The Underground Economy.," Papers 9005, Laval - Recherche en Politique Economique.
5. 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.
6. 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.
   
   • Lacroix, Guy & Fortin, Bernard, 1992. "Utility-Based Estimation of Labour Supply Functions in the Regular and Irregular Sectors," Economic Journal, Royal Economic Society, vol. 102(415), pages 1407-22, November.
7. 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.
8. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484.
9. Namkee Ahn & Sara La De Rica, 1997. "The underground economy in Spain: an alternative to unemployment?," Applied Economics, Taylor and Francis Journals, vol. 29(6), pages 733-743.
10. 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.
11. 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.
12. Hausman, Jerry & Ruud, Paul, 1984. "Family Labor Supply with Taxes," American Economic Review, American Economic Association, vol. 74(2), pages 242-48, May.
13. Jerry A. Hausman & Paul Ruud, 1984. "Family Labor Supply With Taxes," NBER Working Papers 1271, National Bureau of Economic Research, Inc.
14. 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-.
15. Cowell, Frank A., 1985. "Tax evasion with labour income," Journal of Public Economics, Elsevier, vol. 26(1), pages 19-34, February.

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Citations

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Cited by:

1. Philipp Doerrenberg & Denvil Duncan, 2012. "Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply," Cologne Graduate School Working Paper Series 03-10, Cologne Graduate School in Management, Economics and Social Sciences.
   
   • 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).
2. 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.
3. Catalina Granda-Carvajal, 2011. "Macroeconomic Implications of the Underground Sector: Challenging the Double Business Cycle Approach," Working papers 2011-14, University of Connecticut, Department of Economics.
   
   • 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.

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