Working Papers,
Copenhagen Business School, Department of Economics

Abstract: We build a general equilibrium model in terms of a search and matching model with an informal sector. We consider the impact of the traditional policy instruments considered in the tax evasion literature, such as changes in the tax- and punishment system as well as changes in the employment protection legislation and concealment costs, on labour market outcomes. To this end, we set-up a model which allows workers to allocate their search for formal and informal sector jobs optimally. We calibrate and simulate the model to fit the North and the South of Europe, where the share of informal sector workers is equal to three percent in the North and more than 4 times as high in the South. We consider the impact of concealment costs, as there are large differences in terms of tax administration procedures between the South and the North, in terms of that Northern countries make more extensively use of third-party reporting. We also examine whether stricter employment protection legislation in Southern Europe may explain the observed fact.

Keywords: informal economy; tax policy; tax evasion; Northern Europe; Southern Europe

JEL-codes: E24; E26; H26

30 pages, January 29, 2018

Full text files

9588  Full text

Download statistics

• Copenhagen Business School, Department of Economics
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to CBS Library Research Registration Team ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:cbsnow:2018_001This page generated on 2024-09-13 22:14:19.