Social norm, the informal sector and unemployment
While 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 labour market and a social norm. Conducting informal work, or employing a worker infor- mally, is associated with expected punishment fees 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 differences in-between regions or countries in relative sizes of the formal and the informal sectors for similar tax- and punishment policies.
|Date of creation:||01 May 2002|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark|
Phone: 38 15 25 75
Fax: 38 15 34 99
Web page: http://www.cbs.dk/departments/econ/
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- Pissarides, Christopher A., 1998.
"The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure,"
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Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470
- 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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