Research Papers in Economics, Department of Economics, Stockholm University
Under-reporting of Income and Labor Market Performance
() 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: Unemployment; matching; wage bargaining; tax evasion; (follow links to similar papers)
JEL-Codes: H26; J41; J64; (follow links to similar papers)
27 pages, June 15, 2005
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