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Inequality and Underground Economy: A Not so Easy Relationship

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  • Enzo VALENTINI

    ([n.a.])

Abstract

Economic theory is paying increasing attention to non-observed economy (NOE) and its causes. Recently, a couple of works (Rosser et al. 2000, Rosser et al. 2003) have claimed that there is a positive relationship between income inequality and the size of NOE. This supposed relationship is not so clear and deserves in-depth analysis. There is a crucial aspect that has been completely avoided in these studies: income inequality is mainly measured using "regular" incomes and this fact could lead to some bias. The existence of a certain size of NOE implies some income evasion which can affect the inequality indexes used in the study of the relationship between NOE and inequality. Including the regional share of NOE in a wage equation I find that, in the specific case of the Italian private sector employees, the income evasion attached to NOE tends to reduce inequality measured by regular wages statistics.

Suggested Citation

  • Enzo VALENTINI, 2007. "Inequality and Underground Economy: A Not so Easy Relationship," Working Papers 283, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    • Handle: RePEc:anc:wpaper:283
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    1. J. Barkley Rosser Jr & Marina V. Rosser & Ehsan Ahmed, 2003. "Multiple unofficial economy equilibria and income distribution dynamics in systemic transition," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 25(3), pages 425-447.
    2. 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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    6. Rosser, J. Jr. & Rosser, Marina V. & Ahmed, Ehsan, 2000. "Income Inequality and the Informal Economy in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 156-171, March.
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    Cited by:

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    2. Luca RICCETTI, 2011. "A Copula-GARCH Model for Macro Asset Allocation of a Portfolio with Commodities: an Out-of-Sample Analysis," Working Papers 355, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
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    5. Elena AMBROSETTI & Eralba CELA & Tineke FOKKEMA, 2011. "The Remittances Behaviour of the Second Generation in Europe: Altruism or Self-Interest?," Working Papers 368, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

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    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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