Underground Activities and Labour Market Performance

Ann-Sofie Kolm, Birthe Larsen

Research output: Contribution to journalJournal articleResearchpeer-review

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Abstract

We build a general equilibrium search and matching model with an informal sector. We consider the impact of traditional policy instruments discussed in the tax evasion literature, such as changes in the tax and punishment system and the employment protection legislation, as well as the impact of concealment costs, on labour market outcomes. The model is calibrated to and simulated on the northern and southern European countries, where countries in the south have significantly higher informal sectors than countries in the north. We conclude that differences in tax and punishment systems cannot explain the observed difference. Instead, we find that stricter employment protection legislation in southern Europe, as well as the higher tax morale and more extensive use of third-party reporting in northern Europe, are potential candidates for explaining the difference.
Original languageEnglish
JournalInternational Tax and Public Finance
Volume26
Issue number1
Pages (from-to)41–70
Number of pages30
ISSN0927-5940
DOIs
Publication statusPublished - Feb 2019

Bibliographical note

Published online: 22. June 2018

Keywords

  • Informal sector
  • Search and matching
  • Unemployment
  • Concealment costs
  • Employment protection legislation
  • Tax evasion

Cite this

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Underground Activities and Labour Market Performance. / Kolm, Ann-Sofie; Larsen, Birthe.

In: International Tax and Public Finance, Vol. 26, No. 1, 02.2019, p. 41–70.

Research output: Contribution to journalJournal articleResearchpeer-review

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