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Centre for Labour Market and Social Research, Aarhus School of Business, University of Aarhus CLS Working Papers, Centre for Labour Market and Social Research, Aarhus School of Business, University of Aarhus

No 01-2:
Tax Evasion and Work in the Underground Sector

Ebbe Krogh Graversen and Nina Smith ()

Abstract: A bivariate random effect panel data model is estimated for labour supply in the taxable and the non-taxable sectors in Denmark. The results show that wage rates and non-labour income have significant effects on labour supply in both sectors. For men, income taxes seem to twist the labour supply away from taxed regular to untaxed underground supply. For men, the average own wage elasticity with respect to underground labour supply is 0.3 while the cross price elasticity from wages is -0.6 and the income elasticity is -0.1. For women the results are more mixed.

Keywords: Labour supply; Tax evasion; Censored bivariate panel data model.; (follow links to similar papers)

JEL-Codes: C33; C34; H26; J22; (follow links to similar papers)

22 pages, June 27, 2002

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