Giuseppe Ciccarone, Francesco Giuli, Enrico Marchetti

Tackling Undeclared Work. Suggestions from a Business Cycle Model with Search Frictions

  • Abstract

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The paper evaluates the relative effect of deterrence, prevention, curative and commitment policy measures on the size of undeclared work in a real business cycle model with undeclared work, tax evasion and search frictions in the labour market. A numerical application of the model to the European economy shows that all these approaches reduce the undeclared share of output, but that deterrence and commitment policies also produce a negative effect on stationary employment. The curative approach produces the sharper fall in undeclared work while stimulating stationary output and employment.

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