Insiders, Outsiders, and the Underground Economy
This paper considers whether labour market rigidities lead to more underground economic activities. This is suggested by aggregate cross-country data which show that underground economic activities are more strongly correlated with a commonly used index of employment protection than with effective tax rates. A simple theoretical model is constructed to support this finding. The model, contrary to many models of equilibrium unemployment in the literature, also has the feature that a rise in a proportional tax affects employment (in addition to underground economic activities).
|Date of creation:||2003|
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- Bertil Holmlund, 2002.
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- Bertil Holmlund, 2001. "Labor Taxation in Search Equilibrium with Home Production," CESifo Working Paper Series 462, CESifo Group Munich.
- Holmlund, B., 2000. "Labor Taxation in Search Equilibrium with Home Production," Papers 2000:1, Uppsala - Working Paper Series.
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- 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.
- Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
- Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-816, May. Full references (including those not matched with items on IDEAS)
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