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Social norm, the informal sector and unemployment

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  • Kolm, Ann-Sofie

    (Uppsala University)

  • Larsen, Birthe

    (Department of Economics, Copenhagen Business School)

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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Bibliographic 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

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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 34 99
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Web page: http://www.cbs.dk/departments/econ/
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Keywords: Tax evasion; informal sector; matching; bargaining; unem- ployment.;

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References

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  1. Christopher Pissarides, 1997. "The impact of employment tax cuts on unemployment and wages : the role of unemployment benefits and tax structure," LSE Research Online Documents on Economics 2332, London School of Economics and Political Science, LSE Library.
  2. Joel Slemrod & Shlomo Yitzhaki, 2000. "Tax Avoidance, Evasion, and Administration," NBER Working Papers 7473, National Bureau of Economic Research, Inc.
  3. Wen-Ya Chang & Ching-Chong Lai, 1996. "The Implication of Efficiency Wages On Tax Evasion and Tax Collections," Public Finance Review, , vol. 24(2), pages 163-172, April.
  4. 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.
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Cited by:
  1. Kolm, A.S. & Larsen, B., 2001. "Wages, Unemployment, and the Underground Economy," Papers 2001:08, Uppsala - Working Paper Series.
  2. Kolm, Ann-Sofie & Larsen, Birthe, 2004. "Does tax evasion affect unemployment and educational choice?," Working Paper Series 2004:4, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  3. Nikolai Staehler, 2006. "Employment Protection: Its Effects on Different Skill Groups and on the Incentive to become Skilled," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 226(1), pages 41-54, January.
  4. Hartmut Lehmannan & Tiziano Razzolini & Anzelika Zaiceva, 2012. "Job separations, job loss and informality in the Russian labor marke," Center for Economic Research (RECent) 076, University of Modena and Reggio E., Dept. of Economics.
  5. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "The Effects of Labour Market Policies in an Economy with an Informal Sector," Economic Journal, Royal Economic Society, vol. 119(539), pages 1105-1129, 07.
  6. Gabriele Ruiu & Gaetano Lisi, 2011. "Tax Morale, Slippery-Slope Framework and Tax Compliance: A Cross-section Analysis," Working Papers 2011-05, Universita' di Cassino, Dipartimento di Scienze Economiche.
  7. Lehmann, Hartmut & Razzolini, Tiziano & Zaiceva, Anzelika, 2011. "Job Separations and Informality in the Russian Labor Market," IZA Discussion Papers 6230, Institute for the Study of Labor (IZA).
  8. Gaetano Lisi & Maurizio Pugno, 2011. "Tax Morale, Entrepreneurship, and the Irregular Economy," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 5(2), pages 116-131, August.
  9. Kolml, Ann-Sofie & Larsen, Birthe, 2010. "The Black Economy and Education," Research Papers in Economics 2010:3, Stockholm University, Department of Economics.

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