Underground Activities and Labour Market Performance

Birthe Larsen and Ann-Sofie Kolm

No 05-2010, Working Papers from Copenhagen Business School, Department of Economics

Abstract: This paper develops a general equilibrium search and matching model where an underground economy co-exists along with the formal part of the economy. In analyzing how tax and punishment policies a¤ect labour market performance, we nd that punishment of infor- mal sector activities induce workers and rms to reallocate towards the formal sector. However, more importantly, we nd that this real- location tends to improve e¢ ciency in search, reduce the overall wage pressure, and reduce actual unemployment.

Keywords: Tax evasion; Underground economy; matching; unemployment (search for similar items in EconPapers)
JEL-codes: H24 H26 J64 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2010-05-28
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Citations: View citations in EconPapers (2)

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Journal Article: Underground activities and labour market performance (2019)
Working Paper: Underground Activities and Labour Market Performance (2018)
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