Birthe Larsen

Does Tax Evasion Affect Unemployment and Educational Choice

While examining the macroeconomic effects of government tax and punishment policies, this paper develops a three-sector general equilibrium model featuring matching frictions and worker-firm wage bargaining. Workers are assumed to differ in ability, and the choice of education is determined endogenously. Job opportunities in an informal sector are available only to workers who choose not to acquire higher education. We find that increased punishment of informal activities increases the number of educated workers and reduces the number of unemployed workers. The analysis also shows that knowledge spillovers give a welfare maximizing government an extra incentive to punish informal activities.

Labor Market Performance Effects of Discrimination and Loss of Skill

We examine the impact of discrimination on labour market performance when workers are subject to a risk of losing skills during an unemployment experience. Within a search and matching framework, we show that both natives and immigrants are affected by discrimination. Discrimination in one sector has positive spill-overs, inducing employment to increase in the other sector and the effect on labour market performance therefore depends on whether discrimination is present in only one sector or in both sectors. Discrimination may induce workers to train more or less than natives after having lost their skills, dependent upon which sector there is discrimination. Net output tends to the be most negatively affected by discrimination among high-skilled workers

Underground activities and labour market performance

We build a general equilibrium search and matching model with an informal sector. We consider the impact of traditional policy instruments discussed in the tax evasion literature, such as changes in the tax and punishment system and the employment protection legislation, as well as the impact of concealment costs, on labour market outcomes. The model is calibrated to and simulated on the northern and southern European countries, where countries in the south have significantly higher informal sectors than countries in the north. We conclude that differences in tax and punishment systems cannot explain the observed difference. Instead, we find that stricter employment protection legislation in southern Europe, as well as the higher tax morale and more extensive use of third-party reporting in northern Europe, are potential candidates for explaining the difference.

Active Labor Market Policy and Endogenous Search

We analyze the effects active labor market programmes (ALMPs) have on wages and unemployment in a union wage-setting framework where workers decide on their optimal search intensity. We assume ALMPs increase match efficiency. The matching process improves if search intensity increases, leading to higher wages. Unemployment tends to fall because of less mismatch and tends to increase because of higher wages. Firms have hiring costs, wherefore the improved matching process leads to a positive job supply effect in addition to the negative wage effect. The effect on unemployment is negative when search intensity increases and ambiguous when search decreases.