Social Norm, the Informal Sector, and Unemployment
In 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 labor market and a social norm. Conducting informal work, or employing a worker informally, is associated with expected fines 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 interregional differences in relative sizes of the formal and the informal sectors for similar tax and punishment systems.
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Volume (Year): 59 (2002/2003)
Issue (Month): 3 (August)
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References listed on IDEAS
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.:
- Wen-Ya Chang & Ching-Chong Lai, 1996. "The Implication of Efficiency Wages On Tax Evasion and Tax Collections," Public Finance Review, SAGE Publishing, vol. 24(2), pages 163-172, April.
- 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
- 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.
- 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.
- Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers dp0361, Centre for Economic Performance, LSE.
- 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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