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Under-reporting of Income and Labor Market Performance

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  • Kolm, Ann-Sofie

    ()
    (Dept. of Economics, Stockholm University)

  • Nielsen, Søren Bo

    ()
    (Department of Economics, Copenhagen Business School)

Abstract

To examine the effects on labor market performance of government tax and enforcement policies, this paper develops an equilibrium model featuring tax evasion, matching frictions, and worker-firm wage bargains. In the wage bargains, workers and firms can agree on the amount of remuneration that should not be reported to the tax authorities. We find that increased taxation actually reduces unemployment, whereas more zealous enforcement has the opposite effect.

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Bibliographic Info

Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2005:5.

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Length: 27 pages
Date of creation: 15 Jun 2005
Date of revision:
Handle: RePEc:hhs:sunrpe:2005_0005

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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
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Web page: http://www.ne.su.se/
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Keywords: Unemployment; matching; wage bargaining; tax evasion;

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References

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  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.
  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.
  3. Kolm, A.S. & Larsen, B., 2001. "Wages, Unemployment, and the Underground Economy," Papers 2001:08, Uppsala - Working Paper Series.
  4. Boeri, Tito & Garibaldi, Pietro, 2002. "Shadow Activity and Unemployment in a Depressed Labour Market," CEPR Discussion Papers 3433, C.E.P.R. Discussion Papers.
  5. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470 Elsevier.
  6. Jacques, Jean-François & Fugazza, Marco, 2004. "Labor market institutions, taxation and the underground economy," Economics Papers from University Paris Dauphine 123456789/1888, Paris Dauphine University.
  7. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR & CES & MSH, vol. 15(30), pages 47-104, 04.
  8. Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February.
  9. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  10. Cremer, Helmuth & Gahvari, Firouz, 1994. " Tax Evasion, Concealment and the Optimal Linear Income Tax," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(2), pages 219-39.
  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.
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Citations

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Cited by:
  1. Mirco Tonin, 2009. "Minimumwage and tax evasion: theory and evidence," MNB Working Papers 2009/2, Magyar Nemzeti Bank (the central bank of Hungary).
  2. Diego Martínez López, 2011. "How different are the Spanish self-employed workers by underreporting their incomes?," Working Papers. Serie EC 2011-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Gaetano Lisi, 2011. "Job search theory and the slippery slope framework: an attempt to integration," Working Papers 2011-02, Universita' di Cassino, Dipartimento di Scienze Economiche.
  4. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," Economics Working Paper Archive at Hunter College 438, Hunter College Department of Economics.
  5. Gaetano LISI, 2011. "Optimal taxation and monitoring in an economy with matching frictions and underground activities," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 2, pages 5-11, June.
  6. Diego Martinez-Lopez, 2013. "The underreporting of income by self-employed workers in Spain," SERIEs, Spanish Economic Association, vol. 4(4), pages 353-371, November.
  7. Karine Torosyan & Randall K. Filer, 2014. "Tax reform in Georgia and the size of the shadow economy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(1), pages 179-210, 01.
  8. Lisi, Gaetano, 2011. "Matching Models of Equilibrium Unemployment: An Overview," MPRA Paper 30191, University Library of Munich, Germany.
  9. Tonin, Mirco, 2007. "Minimum wage and tax evasion: theory," Discussion Paper Series In Economics And Econometrics 0711, Economics Division, School of Social Sciences, University of Southampton.

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