Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/208473 
Year of Publication: 
2003
Series/Report no.: 
Working paper No. 11-2003
Publisher: 
Copenhagen Business School (CBS), Department of Economics, Frederiksberg
Abstract: 
While examining the macroeconomic effects of increased government control of the informal sector, this paper develops a two-sector general equilibrium model featuring matching frictions and worker-firm wage bargaining. Workers search for jobs in both the formal and the informal sector. We analyse the impact of higher punishment rates and a higher audit rate on labour market performance. We find that a higher punishment rate reduces the size of the informal sector and reduces unemployment. A higher audit rate has an ambiguous impact on unemployment, and may actually increase the size of the underground economy.
Subjects: 
Tax evasion
underground economy
matching
bargaining
unemployment
JEL: 
H26
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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