Market and underground activities in a two-sector dynamic equilibrium model

Francesco Busato () and Bruno Chiarini

Economic Theory, 2004, vol. 23, issue 4, 861 pages

Abstract: In this paper a two sector dynamic general equilibrium model is developed in order to evaluate the implications of the underground economy from a business cycle perspective. There are three main results. First, introducing an underground sector improves the fit of the model to the data, especially along several important labor market dimensions. Second, the model produces substantial internal propagation of temporary shocks. Third, it is shown that underground activities offer risk sharing opportunities by allowing households to smooth income through a proper labor allocation between the two sectors. Copyright Springer-Verlag Berlin/Heidelberg 2004

Keywords: Two-sector dynamic general equilibrium model; Underground economy; Propagation of shocks; Taxation. (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (119)

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DOI: 10.1007/s00199-003-0400-5

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