Eastern Journal of European Studies (Jun 2011)
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: she/he may either substitute a tighter monitoring with a higher penalty or enforce both a higher taxation and an increased monitoring.