Undeclared Labour in Cournot Oligopoly (original) (raw)

In a duopoly where firms are competing by adjusting their quantities and the wages are exogenously determined, we analyze the undeclared labour phenomenon and its side effects in product market. Our analysis focuses on the opportunity cost between the taxation and the contributions for social security. The findings of our analysis indicate that there is a strong relationship between the tax rate, the rate of contributions for social insurance and undeclared labour. It is furthermore determined that any combination of tax (t) / contributions (k) rates under the curve, will lead firms to practice undeclared labour, in order to avoid paying contributions for social security, since the alternative choice is more costly.