Optimal taxation and monitoring in an economy with matching frictions and underground activities

Lisi, Gaetano (2010): Optimal taxation and monitoring in an economy with matching frictions and underground activities.

Abstract

This short paper shows the interdependence of taxation and monitoring policy in a search and matching model of equilibrium unemployment with an underground sector. More precisely, from a social welfare standpoint, two options are available to the policy maker: s/he may either substitute a tighter monitoring with a higher penalty or enforce both a higher taxation and an increased monitoring.

• Item Type: MPRA Paper
• Language: English
• Keywords: optimal taxation, tax evasion, underground economy, job search theory
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E26 - Informal Economy ; Underground Economy; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance

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