| Author/Presenter |
Bernard Fortin (Laval University) |
| Co-authors |
Nadia Joubert (Université de Lyon 2) |
| |
Guy Lacroix (Laval University) |
| Title |
An Econometric Model of Labour Supply in the Underground Economy |
| Abstract |
This paper estimates a model of labour supply in the regular and irregular sectors which incorporates the tax system and tax enforcement policies. The theoretical model is based on the standard tax evasion model with endogenous income. The parameters are estimated by simulated full information maximum likelihood on individual Canadian data. Our simultaneous equation system includes hours of work in both sectors, virtual income, regular net wage and expected irregular wage as endogenous variables. Our approach takes into account corner solutions and the endogeneity of subjective audits and penalties variables. We find that tax policies and tax enforcement parameters affect the labour supply on both sectors. The data reject the assumptions of perfect substitutability between hours of work and that of additive separability of the utility function. |