A general equilibrium model is proposed which assumes that firms hire both official and unregistered labour as imperfect substitutes, and that the efficiency of official labour can be increased by heterogeneous ability of the entrepreneurs and by Marshallian non-linear externalities, i.e., externalities arise if firms are sufficiently numerous. Two stable equilibria are possible representing a developed and an underdeveloped economy. In the ‘‘good’’ equilibrium the number and the size of firms, the proportion of official employment, overall output and efficiency are greater than in the ‘‘bad’’ equilibrium. Different kinds of policy with which to reduce the underground economy and to enhance development are studied.
The underground economy and underdevelopment
PUGNO, Maurizio
2004-01-01
Abstract
A general equilibrium model is proposed which assumes that firms hire both official and unregistered labour as imperfect substitutes, and that the efficiency of official labour can be increased by heterogeneous ability of the entrepreneurs and by Marshallian non-linear externalities, i.e., externalities arise if firms are sufficiently numerous. Two stable equilibria are possible representing a developed and an underdeveloped economy. In the ‘‘good’’ equilibrium the number and the size of firms, the proportion of official employment, overall output and efficiency are greater than in the ‘‘bad’’ equilibrium. Different kinds of policy with which to reduce the underground economy and to enhance development are studied.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
