Illegal Immigration and the Shadow Economy

Carmen Camacho (1) , Fabio Mariani (2, 3) , Luca Pensieroso (2)

1 CES - Centre d'économie de la Sorbonne
2 UCL IRES - Institut de recherches économiques et sociales
3 IZA - Institute for the Study of Labor

We build a general equilibrium model in which both illegal immigration and the size of the informal sector are endogenously determined and interact in a non-trivial way. We show that policy measures such as tax reduction and detection of informal activities can be used as substitutes for border enforcement, in order to contrast illegal immigration. In our framework, a welfare-maximising Government will never choose to drive illegal immigration to zero, but will set the tax rate to a lower value if it includes illegal immigration in its objective function.

Mots clés: Illegal immigration; Clandestine workers; Informal sector; Shadow economy; Black market; Taxation; Immigration policy

Domaines: Economies et finances; Analyse fonctionnelle [math.FA]

Carmen Camacho, Fabio Mariani, Luca Pensieroso. Illegal Immigration and the Shadow Economy. 2015. ⟨halshs-01178945⟩