Wages, Unemployment, and the Underground Economy
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 and worker-firm wage bargaining. Different goods are produced in the formal sector and the informal sector, and workers search for jobs in both sectors. We analyse the impact of higher punishment rates and a higher audit rate on labor market performance, and we find that a higher punishment rate (i) reduces the size of the informal sector and increases the size of the formal sector, (ii) decreases real producer wages in both sectors, and (iii) reduces the unemployment rate. The effect of a higher audit rate is less clear. We find that a higher audit rate (i) reduces the size of the informal sector relative to the size of the formal sector, and (ii) has an ambiguous impact on unemployment and real wages.
|Date of creation:||15 Feb 2001|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden|
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
More information through EDIRC
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.:
- Joel Slemrod & Shlomo Yitzhaki, 2000.
"Tax Avoidance, Evasion, and Administration,"
NBER Working Papers
7473, National Bureau of Economic Research, Inc.
- Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
- Fugazza, Marco & Jacques, Jean-Francois, 2004. "Labor market institutions, taxation and the underground economy," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 395-418, January.
- James Albrecht & Susan Vroman, 2000.
"A Matching Model with Endogenous Skill Requirements,"
Econometric Society World Congress 2000 Contributed Papers
0774, Econometric Society.
- James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
- Tito Boeri & Pietro Garibaldi, .
"Shadow Activity and Unemployment in a Depressed Labor Market,"
177, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Boeri, Tito & Garibaldi, Pietro, 2002. "Shadow Activity and Unemployment in a Depressed Labour Market," CEPR Discussion Papers 3433, C.E.P.R. Discussion Papers.
- Mortensen, Dale T & Pissarides, Christopher, 1999.
"New Developments in Models of Search in the Labour Market,"
CEPR Discussion Papers
2053, C.E.P.R. Discussion Papers.
- Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
- Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February.
- Wen-Ya Chang & Ching-Chong Lai, 1996. "The Implication of Efficiency Wages On Tax Evasion and Tax Collections," Public Finance Review, , vol. 24(2), pages 163-172, April.
- Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
- 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.
- 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.
- Kolm, Ann-Sofie & Larsen, Birthe, 2001. "Moral Costs, The Informal Sector And Unemployment," Working Papers 01-2001, Copenhagen Business School, Department of Economics.
- Ann-Sofie Kolm & Birthe Larsen, 2002.
"Social Norm, the Informal Sector, and Unemployment,"
FinanzArchiv: Public Finance Analysis,
Mohr Siebeck, Tübingen, vol. 59(3), pages 407-, August.
When requesting a correction, please mention this item's handle: RePEc:hhs:uunewp:2001_008. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarina Grönvall)
If references are entirely missing, you can add them using this form.