Government policies and graft in an economy with endogenous labor supply |
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| Affiliation: | 1. School of Economics, University of Kent, Kent CT2 7NP, United Kingdom;2. School of Economics, University of Surrey, Guildford, Surrey GU2 7XH, United Kingdom;3. Department of Economics Mathematics Statistics, Birkbeck College, University of London, London WC1E 7HX, United Kingdom |
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| Abstract: | This paper is an extension of Marcouiller and Young's [Am. Econ. Rev. 85 (1995) 630] paper which shows that in a two-good economy with constant labor supply, the government can always increase graft by squeezing the formal sector out of existence. In this paper, we find that if individuals choose the amount of labor they supply, the government can increase graft by eliminating formal production in relatively rare cases. |
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