Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82232
Authors: 
Kolm, Ann-Sofie
Larsen, Birthe
Year of Publication: 
2004
Series/Report no.: 
Working Paper, IFAU - Institute for Labour Market Policy Evaluation 2004:4
Abstract: 
To examine the macro economic effects of government tax and punishment policies, this paper develops a three-sector general quilibrium model featuring matching frictions, heterogenous abilities and an informal sector with tax evasion. The choice of education is determined endogenously. Job opportunities in an informal sector are available only to workers who choose not to acquire higher education. We find that increased punishment of informal activities increases the number of educated workers and reduces the number of unemployed workers. Characterizing the optimal tax and punishment system, we show that it is optimal to more than fully counteract the distortion created by the governmentÂ’s inability to tax the informal sector. The optimal choice of tax and punishment system, however, implies an inefficiently low stock of educated workers.
Subjects: 
Tax evasion
underground economy
education
matching
unemployment
JEL: 
H26
I21
J64
Document Type: 
Working Paper

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