Program (by speaker) > Di Nola Alessandro

This paper studies how tax evasion in the self-employment sector affects aggregate outcomes and welfare. We develop a dynamic general equilibrium model with incomplete markets in which heterogeneous agents choose between being a worker or self-employed. Self-employed agents may misreport their business income but face the risk of being detected by the tax authority. Our model replicates important quantitative features of the U.S. in terms of income, wealth, self-employment, and tax evasion. Tax evasion leads to a larger self-employment sector but reduces the average size and productivity of self-employed businesses. Tax evasion increases aggregate welfare at the expense of workers.