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Optimal taxation and monitoring in an economy with matching frictions and underground activities

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  • Lisi, Gaetano

Abstract

This short paper shows the interdependence of taxation and monitoring policy in a search and matching model of equilibrium unemployment with an underground sector. More precisely, from a social welfare standpoint, two options are available to the policy maker: s/he may either substitute a tighter monitoring with a higher penalty or enforce both a higher taxation and an increased monitoring.

Suggested Citation

  • Lisi, Gaetano, 2010. "Optimal taxation and monitoring in an economy with matching frictions and underground activities," MPRA Paper 27701, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27701
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    References listed on IDEAS

    as
    1. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    2. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "The Effects of Labour Market Policies in an Economy with an Informal Sector," Economic Journal, Royal Economic Society, vol. 119(539), pages 1105-1129, July.
    3. Maxim Bouev, 2002. "Official Regulations and the Shadow Economy: A Labour Market Approach," William Davidson Institute Working Papers Series 524, William Davidson Institute at the University of Michigan.
    4. Lisi, Gaetano, 2011. "Matching Models of Equilibrium Unemployment: An Overview," MPRA Paper 30191, University Library of Munich, Germany.
    5. Tito Boeri & Pietro Garibaldi, 2005. "Shadow Sorting," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 125-163, National Bureau of Economic Research, Inc.
    6. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    7. Ann‐Sofie Kolm & Søren Bo Nielsen, 2008. "Under‐reporting of Income and Labor Market Performance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(2), pages 195-217, April.
    8. 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.
    9. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    10. Klarita Gërxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, September.
    11. Kolm, Ann-Sofie & Larsen, Birthe, 2001. "Wages, Unemployment, and the Underground Economy," Working Paper Series 2001:8, Uppsala University, Department of Economics.
    12. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    13. Simon Burgess & Helene Turon, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies – A Comment," Bristol Economics Discussion Papers 05/573, School of Economics, University of Bristol, UK.
    14. Tito Boeri & Pietro Garibaldi, "undated". "Shadow Activity and Unemployment in a Depressed Labor Market," Working Papers 177, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    15. Gaetano Lisi, 2010. "The Strange Case of Dr. “Unemployed” and Mr “Hidden” in Italy," Economics Bulletin, AccessEcon, vol. 30(4), pages 2802-2816.
    16. Maxim Bouev, 2005. "State Regulations, Job Search and Wage Bargaining: A Study in the Economics of the Informal Sector," William Davidson Institute Working Papers Series wp764, William Davidson Institute at the University of Michigan.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    optimal taxation; tax evasion; underground economy; job search theory;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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