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Are Underground Workers More Likely to be Underground Consumers?

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Author Info
Fortin, Bernard ()
Lacroix, Guy
Montmarquette, Claude

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Abstract

This paper investigates the effect of working in the underground sector on the level of individual underground expenditures. We show that it can be decomposed into a network effect, a non-separability effect and an income effect. Our empirical analysis uses micro data from a randomized survey conducted in the Province of Quebec during 1993. GMM methods allow us to take into account censoring and measurement error on the dependent variable as well as the possible endogeneity of the conditioning labor supply variables. We find that an increase in the underground labor supply has a strong positive effect on the level of underground expenditures. This relationship amplifies the impact of tax policy and of the enforcement system on the size of the underground economy.

Cet article étudie l'effet du travail au noir sur le niveau des achats au noir des individus. On montre qu'il peut se décomposer en un effet de réseau, un effet de non-séparabilité et un effet revenu. Notre analyse empirique utilise des micro-données tirées d'une enquêteréalisée au Québec pour 1993. La méthode des moments généralisés nous permet de tenir compte de la censure et des erreurs de mesure sur la variable dépendante ainsi que de l'endogénéité des variables d'offre de travail qui conditionnent les décisions de consommation. Selon nos résultats, une hausse de l'offre de travail au noir accroît de façon importante le niveau des dépenses au noir. Cet effet amplifie l'impact des politiques de taxation et de contrôle fiscal sur la taille de l'économie souterraine.

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Paper provided by Université Laval - Département d'économique in its series Cahiers de recherche with number 9710.

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Date of creation: 1997
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Handle: RePEc:lvl:laeccr:9710

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Find related papers by JEL classification:
C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored 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

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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. Browning, M J, 1983. "Necessary and Sufficient Conditions for Conditional Cost Functions," Econometrica, Econometric Society, vol. 51(3), pages 851-56, May. [Downloadable!] (restricted)
  2. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November. [Downloadable!] (restricted)
  3. Usher, Dan, 1986. "Tax Evasion and the Marginal Cost of Public Funds," Economic Inquiry, Oxford University Press, vol. 24(4), pages 563-86, October.
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  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. [Downloadable!] (restricted)
  5. Cowell, F A, 1990. "Tax Sheltering and the Cost of Evasion," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 231-43, January. [Downloadable!] (restricted)
  6. Pollak, Robert A, 1969. "Conditional Demand Functions and Consumption Theory," The Quarterly Journal of Economics, MIT Press, vol. 83(1), pages 60-78, February. [Downloadable!] (restricted)
  7. Wales, T. J. & Woodland, A. D., 1983. "Estimation of consumer demand systems with binding non-negativity constraints," Journal of Econometrics, Elsevier, vol. 21(3), pages 263-285, April. [Downloadable!] (restricted)
  8. Kesselman, Jonathan R., 1989. "Income tax evasion : An intersectoral analysis," Journal of Public Economics, Elsevier, vol. 38(2), pages 137-182, March. [Downloadable!] (restricted)
  9. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-87, October. [Downloadable!] (restricted)
  10. Andersen, Per, 1977. " Tax Evasion and Labor Supply," Scandinavian Journal of Economics, Blackwell Publishing, vol. 79(3), pages 375-83.
  11. MacKinnon, James G. & White, Halbert, 1985. "Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties," Journal of Econometrics, Elsevier, vol. 29(3), pages 305-325, September. [Downloadable!] (restricted)
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  12. Stapleton, David C & Young, Douglas J, 1984. "Censored Normal Regression with Measurement Error on the Dependent Variable," Econometrica, Econometric Society, vol. 52(3), pages 737-60, May. [Downloadable!] (restricted)
  13. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-63, June. [Downloadable!] (restricted)
  14. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  15. Browning, Martin & Meghir, Costas, 1991. "The Effects of Male and Female Labor Supply on Commodity Demands," Econometrica, Econometric Society, vol. 59(4), pages 925-51, July. [Downloadable!] (restricted)
  16. Cowell, Frank A., 1985. "Tax evasion with labour income," Journal of Public Economics, Elsevier, vol. 26(1), pages 19-34, February. [Downloadable!] (restricted)
  17. 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.
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  18. Neary, J. P. & Roberts, K. W. S., 1980. "The theory of household behaviour under rationing," European Economic Review, Elsevier, vol. 13(1), pages 25-42, January. [Downloadable!] (restricted)
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Full references

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. Bruno Chiarini & Elisabetta Marzano, 2006. "Market Consumption and Hidden Consumption: A Test for Substitutability," Discussion Papers 12_2006, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
    Other versions:
  2. Brück, Tilman & Haisken-DeNew, John P. & Zimmermann, Klaus F., 2003. "Creating Low Skilled Jobs by Subsidizing Market-Contracted Household Work," IZA Discussion Papers 958, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Jan Hanousek & Filip Palda, 2002. "The Evolution of Tax Evasion in the Czech Republic: A Markov Chain Analysis," Public Economics 0205002, EconWPA. [Downloadable!]
  4. Piolatto, Amedeo, 2008. "Tax evasion and deductible expenses," MPRA Paper 10136, University Library of Munich, Germany, revised Jul 2008. [Downloadable!]
  5. Benoit Dostie & Désiré Vencatachellum, 2004. "Compulsory and Voluntary Remittances: Evidence from Child Domestic Workers in Tunisia," Cahiers de recherche 04-04, HEC Montréal, Institut d'économie appliquée. [Downloadable!]
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