Underground Activities and Labour Market Performance

Ann-Sofie Kolm; Birthe Larsen

Underground Activities and Labour Market Performance

Ann-Sofie Kolm, Birthe Larsen

Department of Economics

Stockholm University

Research output: Working paper › Research

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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 affect labour market performance, we find that punishment of informal sector activities induce workers and firms to reallocate towards the formal sector. However, more importantly, we find that this reallocation tends to improve effciency in search, reduce the overall wage
pressure, and reduce actual unemployment.

Original language	English
Place of Publication	Frederiksberg
Publisher	Copenhagen Business School, CBS
Number of pages	18
Publication status	Published - 2010

Series	Working Paper / Department of Economics. Copenhagen Business School
Number	5-2010

Keywords

Tax evasion
Underground economy
Matching
Unemployment

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