The size-wage effect is well documented in the empirical literature, and typical attempts of explanation center on the supply side, using variations of the human capital approach, perhaps combined with institutional theories. With conclusive evidence of its source yet to emerge, an alternative...

Guided by a simple theory of task assignment and time allocation, we investigate the long run response to national differences in tax rates on labor income, payrolls and consumption. The theory implies that higher tax rates reduce work time in the market sector, increase the size of the shadow...