Underground economy and aggregate fluctuations

Juan Carlos Conesa (), Carlos Diaz Moreno and Jose Enrique Galdon-Sanchez ()

No 17, Working Papers in Economics from Universitat de Barcelona. Espai de Recerca en Economia

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.

JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 1997

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Journal Article: Underground economy and aggregate fluctuations (2001)
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Persistent link: http://EconPapers.repec.org/RePEc:bar:bedcje:199717

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