Evading taxes on work. Labor time allocation and growth in a two sector model

This paper uses a multi-sector supply side model to analyse the impact of tax evasion on income level and economic growth. In this model tax evasion is not the source of distortions in perfect competitive regimes, but is a consequence of the presence of imperfect competition among firms in different sectors. The paper shows that the presence of public expenditure in the production function is not vital to disclose a negative influence of tax evasion on growth since changing the enforcement policy does not influence production through tax revenues.