Tax Evasion and Work in the Underground Sector

CLS Working Paper No. 01-02

32 Pages Posted: 4 Feb 2002

See all articles by Ebbe Krogh Graversen

Ebbe Krogh Graversen

Aarhus University - Department of Economics and Business Economics; Danish National Institute of Social Research (SFI); Aarhus University - Centre for Research in Social Integration and Marginalization (CIM)

Nina Smith

Aarhus University - Department of Economics and Business Economics; IZA Institute of Labor Economics

Date Written: February 2001

Abstract

A bivariate random effect panel data model is estimated for labor supply in the taxable and the nontaxable sectors in Denmark. The results show that wage rates and non-labor income have significant effects on labor supply in both sectors. For men, income taxes seem to twist the labor supply away from taxed regular to untaxed underground supply. For men, the average own wage elasticity with respect to underground labor supply is 0.3 while the cross price elasticity from regular wages is -0.6 and the income elasticity is -0.1. For women the results are more mixed.

Keywords: Labor supply, tax evasion, censored bivariate panel data model

JEL Classification: C33, C34, H26, J22

Suggested Citation

Graversen, Ebbe Krogh and Smith, Nina, Tax Evasion and Work in the Underground Sector (February 2001). CLS Working Paper No. 01-02, Available at SSRN: https://ssrn.com/abstract=298560 or http://dx.doi.org/10.2139/ssrn.298560

Ebbe Krogh Graversen

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V
Denmark
+45 8942 2360 (Phone)

Danish National Institute of Social Research (SFI)

Herluf Trolles Gade 11
DK-1052 Kopenhagen
Denmark

Aarhus University - Centre for Research in Social Integration and Marginalization (CIM) ( email )

DK-8210 Aarhus V
Denmark

Nina Smith (Contact Author)

Aarhus University - Department of Economics and Business Economics ( email )

Universitetsparken
DK-8000 Aarhus C
Denmark
+45 8948 6413 (Phone)
+45 8615 5175 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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