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Underground activities and labour market performance

Ann-Sofie Kolm () and Birthe Larsen

International Tax and Public Finance, 2019, vol. 26, issue 1, 41-70

Abstract: Abstract We build a general equilibrium search and matching model with an informal sector. We consider the impact of traditional policy instruments discussed in the tax evasion literature, such as changes in the tax and punishment system and the employment protection legislation, as well as the impact of concealment costs, on labour market outcomes. The model is calibrated to and simulated on the northern and southern European countries, where countries in the south have significantly higher informal sectors than countries in the north. We conclude that differences in tax and punishment systems cannot explain the observed difference. Instead, we find that stricter employment protection legislation in southern Europe, as well as the higher tax morale and more extensive use of third-party reporting in northern Europe, are potential candidates for explaining the difference.

Keywords: Informal sector; Search and matching; Unemployment; Concealment costs; Employment protection legislation; Tax evasion (search for similar items in EconPapers)
JEL-codes: H26 J64 E26 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Underground Activities and Labour Market Performance (2018) Downloads
Working Paper: Underground Activities and Labour Market Performance (2010) Downloads
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