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Social norm, the informal sector and unemployment

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Author Info
Kolm, Ann-Sofie (Uppsala University)
Larsen, Birthe (Department of Economics, Copenhagen Business School)

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Abstract

While examining the macroeconomic effects of increased government

control of the informal sector, this paper develops a two-sector general

equilibrium model featuring matching frictions on the labour market and

a social norm. Conducting informal work, or employing a worker infor-

mally, is associated with expected punishment fees and payments of a

moral cost, given that there is a social norm against tax evasion. This

framework facilitates an analysis of how wage setting, unemployment and

the size of the informal sector are affected by punishment policies, which

has been ignored in the previous literature. Furthermore, the inclusion of

an endogenously determined norm against tax evasion may explain differences in-between regions or countries in relative sizes of the formal and the informal sectors for similar tax- and punishment policies.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7586
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Publisher Info
Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 04-2002.

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Length: 24 pages
Date of creation: 01 May 2002
Date of revision:
Handle: RePEc:hhs:cbsnow:2002_004

Contact details of provider:
Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 26 65
Email:
Web page: http://www.cbs.dk/departments/econ/
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Related research
Keywords: Tax evasion; informal sector; matching; bargaining; unem- ployment.;

Other versions of this item:

Find related papers by JEL classification:
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ahn, Namkee & De la Rica, Sara, 1997. "The Underground Economy in Spain: An Alternative to Unemployment?," Applied Economics, Taylor and Francis Journals, vol. 29(6), pages 733-43, June. [Downloadable!] (restricted)
  2. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kolm, Ann-Sofie & Larsen, Birthe, 2006. "Does Tax Evasion Affect Unemployment and Educational Choice?," Working Papers 12-2003, Copenhagen Business School, Department of Economics. [Downloadable!]
    Other versions:
  2. Kolm, Anne-Sofie & Larsen, Birthe, 2003. "Wages, unemployment, and the underground economy," Working Papers 11-2003, Copenhagen Business School, Department of Economics. [Downloadable!]
    Other versions:
  3. James Albrecht & Lucas Navarro & Susan Vroman, 2006. "The Effects of Labor Market Policies in an Economy with an Informal Sector," IZA Discussion Papers 2141, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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