This paper analyses the emergence of the informal economy in the environment characterised by non-competitive labour markets with wage bargaining. We develop a simple extension of the standard search model à la Pissarides (2000) with formal and informal sectors to show how a government’s...

This work revisits the role of regulations in emergence o f the shadow economy. In particular, it supplements the previous theoretical research that mainly ignored the fact that the decision to “go underground” is essentially a result of both employers and employees interacting in the labour...

This work suggests a development of the seminal model of transition from plan to market economy by Aghion and Blanchard (1994). We introduce an informal sector to show that its presence can generate qualitatively di?erent steady states, to which the economy converges in the end of transition....