Research Papers in Economics, Department of Economics, Stockholm University
The Black Economy and Education
() and Birthe Larsen
Abstract: This paper develops and equilibrium search and matching
model with informal sector employment opportunities and educational choice.
We show that informal sector job opportunities distort educational
attainment inducing a too low stock of educated workers. As informal job
opportunities to a larger extent face low skilled workers, combating the
informal sector improves welfare as it increases the incentives for
education. However, too aggressive combating of the informal sector is not
optimal as that induces inefficiently high unemployment rates.
Keywords: Tax evasion; underground economy; education; matching; unemployment; (follow links to similar papers)
JEL-Codes: H26; I21; J64; (follow links to similar papers)
27 pages, February 2, 2010
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