Working Paper Series, Department of Economics, Copenhagen Business School
Underground Activities and Labour Market Performance
() and Ann-Sofie Kolm
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
Keywords: Tax evasion; Underground economy; matching; unemployment; (follow links to similar papers)
JEL-Codes: H24; H26; J64; (follow links to similar papers)
18 pages, May 28, 2010
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