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Under‐reporting of Income and Labor Market Performance
Author(s) -
KOLM ANNSOFIE,
BO NIELSEN SØREN
Publication year - 2008
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2008.00358.x
Subject(s) - remuneration , economics , enforcement , labour economics , unemployment , wage , matching (statistics) , evasion (ethics) , efficiency wage , income tax , government (linguistics) , tax evasion , monetary economics , macroeconomics , market economy , public economics , finance , law , linguistics , statistics , philosophy , mathematics , immune system , immunology , biology , political science
To examine the effects on labor market performance of government tax and enforcement policies, this paper develops an equilibrium model featuring tax evasion, matching frictions, and worker–firm wage bargains. In the wage bargains, workers and firms can agree on the amount of remuneration that should not be reported to the tax authorities. We find that increased taxation actually reduces unemployment, whereas more zealous enforcement has the opposite effect.