Wages, Unemployment, and the Underground Economy

Ann-Sofie Kolm () and Birthe Larsen ()

No CESifo Working Paper No. 1086, CESifo Working Paper Series from CESifo Group Munich

Abstract: 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. Workers search for jobs in both the formal and the informal sector. We analyse the impact of higher punishment rates and a higher audit rate on labour market performance. We find that a higher punishment rate reduces the size of the informal sector and reduces unemployment. A higher audit rate has an ambiguous impact on unemployment, and may actually increase the size of the underground economy.

Keywords: tax evasion; underground economy; matching; bargaining; unemployment (search for similar items in EconPapers)
JEL-codes: H26 (search for similar items in EconPapers)
Date: 2003
View list of references

Downloads: (external link)
http://www.cesifo-group.de/DocCIDL/cesifo1_wp1086.pdf (application/pdf)

Related works:
Working Paper: Wages, unemployment, and the underground economy (2003)
Working Paper: Wages, Unemployment, and the Underground Economy (2001)
Working Paper: Wages, Unemployment, and the Underground Economy (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ces:ceswps:_1086

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Group Munich
Address: Poschingerstrasse 5, 81679 Munich
Series data maintained by Julio Saavedra ().