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Are Underground Workers More Likely to be Underground Consumers?

  • Fortin, Bernard
  • Lacroix, Guy
  • Montmarquette, Claude

We investigate the impact of working in the underground sector on the demand for underground commodities. Using a tax evasion model with costly information, we show that the presence of a network effect encourages underground workers to purchase underground commodities. The model is estimated using a unique Canadian microdata set for 1993. An increase in underground hours of work has a strong positive effect on the probability of purchasing underground commodities and on the level of expenditures. This relationship has a sizable effect on the impact of tax and enforcement parameters on the level of the underground economy.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 110 (2000)
Issue (Month): 466 (October)
Pages: 838-60

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Handle: RePEc:ecj:econjl:v:110:y:2000:i:466:p:838-60
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  1. 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.
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  17. 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.
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