Optimal Tax Policy with Dual Labor Markets
We recently joined the International Institute of Public Finance (IIPF) Annual Congress held in Tokyo, Japan, from August 18 through 20, 2017. We had the honor of presenting our work on how evasion of social security taxes explains the prevalence of underground labor market activities. The Congress was graced by eminent economists from all over the world, including University of Michigan Prof. Joel Slemrod and of course the local organizer Prof. Motohiro Sato (of Hitotsubashi University, Japan). While the rain and humidity made the going tough, participants at the various sessions more than made up for the bad weather with insightful discussions on issues of public economics. Our paper received one major objection: our assumption that "secondary" income is fully observable to the tax authority. While we don't think this objection affects the core message of our paper, it always seems to rub our audiences the wrong way.
Here is our presentation: