Tax evasion and work in the underground sector |
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| Affiliation: | 1. Faculty of Economics and Business,University of Groningen, PO Box 800, Groningen 9700 AV, The Netherlands;2. University of Tasmania, Australia;3. CAMA, Australia;4. CIRANO, Canada;5. HEC Montréal, Canada;1. Turku School of Economics, Labour Institute for Economic Research and IZA, Pitkänsillanranta 3A, FI-00530 Helsinki, Finland;2. University of Jyväskylä, School of Business and Economics, Jyväskylä, Finland;3. Labour Institute for Economic Research, Helsinki, Finland |
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| Abstract: | A bivariate random effect panel data model is estimated for male labour supply in the taxable and the non-taxable sectors in Denmark. The wage rates and non-labour income have significant effects on labour supply in both sectors. The average own wage elasticity with respect to underground labour supply is found to be small, 0.02, while the cross price elasticity from regular wages is larger, − 0.52. Simulations of potential tax reforms show that a reduction of the marginal taxes has minor effects on male labour supply to the untaxed sector, while the effect on male labour supply to the taxed sector is larger. |
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