Underground Activities and Labour Market Performance

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Underground Activities and Labour Market Performance

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Title: Underground Activities and Labour Market Performance
Author: Kolm, Ann-Sofie; Larsen, Birthe
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 a¤ect labour market performance, we find that punishment of infor- mal sector activities induce workers and firms to reallocate towards the formal sector. However, more importantly, we find that this real- location tends to improve e¢ ciency in search, reduce the overall wage pressure, and reduce actual unemployment.
URI: http://hdl.handle.net/10398/8209
Date: 2010-11-18

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