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Department of Economics, Copenhagen Business School Working Paper Series, Department of Economics, Copenhagen Business School

No 10-2007:
Under-reporting of income and Labour Market Performance

Ann-Sofie Kolm and Søren Bo Nielsen

Abstract: To examine the effects on labor market performance of government tax and enforcement policies, this paper develops an equilibrium model featuring tax evasion, matching frictions, and worker-firm wage bargains. In the wage bargains, workers and firms can agree on the amount of remuneration that should not be reported to the tax authorities. We find that increased taxation actually reduces unemployment, whereas more zealous enforcement has the opposite effect.

Keywords: na; (follow links to similar papers)

JEL-Codes: E01; F16; (follow links to similar papers)

31 pages, January 1, 2007

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