Efficient black markets? |
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Institution: | 1. Department of Economics, Marshall-Adams Hall, Michigan State University, East Lansing, MI 48824, United States;2. GEP, University of Nottingham, United Kingdom |
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Abstract: | This paper investigates analytically the welfare effects of black-market activities that firms undertake to evade taxes. The desirability of a black market is linked to the attributes of the goods supplied by black-market firms. The analysis identifies cases where a black market reduces (increases) the distortionary impact of taxation on the allocation of resources across the goods that the government is attempting to tax, leading to a welfare gain (loss). |
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