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Underground activities and labour market performance

Author

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  • Ann-Sofie Kolm

    (Stockholm University)

  • Birthe Larsen

    () (Copenhagen Business School)

Abstract

Abstract We build a general equilibrium search and matching model with an informal sector. We consider the impact of traditional policy instruments discussed in the tax evasion literature, such as changes in the tax and punishment system and the employment protection legislation, as well as the impact of concealment costs, on labour market outcomes. The model is calibrated to and simulated on the northern and southern European countries, where countries in the south have significantly higher informal sectors than countries in the north. We conclude that differences in tax and punishment systems cannot explain the observed difference. Instead, we find that stricter employment protection legislation in southern Europe, as well as the higher tax morale and more extensive use of third-party reporting in northern Europe, are potential candidates for explaining the difference.

Suggested Citation

  • Ann-Sofie Kolm & Birthe Larsen, 2019. "Underground activities and labour market performance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(1), pages 41-70, February.
  • Handle: RePEc:kap:itaxpf:v:26:y:2019:i:1:d:10.1007_s10797-018-9505-4
    DOI: 10.1007/s10797-018-9505-4
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    References listed on IDEAS

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    Cited by:

    1. Marie Bjørneby & Annette Alstadsæter & Kjetil Telle, 2018. "Collusive Tax Evasion by Employers and Employees: Evidence from a Randomized Field Experiment in Norway," CESifo Working Paper Series 7381, CESifo Group Munich.

    More about this item

    Keywords

    Informal sector; Search and matching; Unemployment; Concealment costs; Employment protection legislation; Tax evasion;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy

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