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Underground economy and aggregate fluctuations

Author

Listed:
  • Juan Carlos Conesa
  • Carlos Diaz Moreno
  • Jose Enrique Galdon Sanchez

    (Universitat de Barcelona)

Abstract

This paper explores the role of underground economic activities as an explanation for cross-country differences in registered aggregate fluctuations. In order to do so, we develop a two-sector Real Business Cycle model calibrated to the USA economy. In our model, individuals will participate or not in registered economic activities according to the wage premium, i.e. the ratio of average wages to the minimum wage. Our main result is that exogenously specified differences in the wage premium could account for the high range of registered aggregate fluctuations found across countries.

Suggested Citation

  • Juan Carlos Conesa & Carlos Diaz Moreno & Jose Enrique Galdon Sanchez, 1997. "Underground economy and aggregate fluctuations," Working Papers in Economics 17, Universitat de Barcelona. Espai de Recerca en Economia.
    • Handle: RePEc:bar:bedcje:199717
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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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