Search and Taxation in a Model of Underground Economic Activities |
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| Authors: | Dan Anderberg Alessandro Balestrino Umberto Galmarini |
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| Affiliation: | Anderberg;: Senior Lecturer, Department of Economics, Royal Holloway University of London, Egham, Surrey, TW20 0EX, United Kingdom. Phone 441784414082, Fax 441784439534, E-mail Balestrino;: Professor, Department of Economics, University of Pisa, Political Sciences Faculty Bldg., via Serafini 3, 56126 Pisa, Italy. Phone 390502212437, Fax 390502212450, E-mail Galmarini;: Associate Professor, Institute of Law, University of Insubria, Viale Cavallotti 5, 22100 Como, Italy. Phone 390313305814, Fax 390313305830, E-mail |
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| Abstract: | We develop a simple model of an economy with underground production and trade. Because of the furtive nature of underground activities, information about trading opportunities in the irregular sector is less than perfect—hence, agents devote some time to locate trading partners in the black economy and then bargain over the terms of trade. The model stresses how individual involvement in underground economic activities is related to earnings capacity. It also highlights how taxes and tax enforcement are natural policy complements. Both results are argued to be useful when interpreting micro- and aggregate-level data on underground economic activities. (JEL H26 , H21 , D72 , D83 ) |
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