In our model the choice to operate in the underground economy is driven by technological reasons, and the model implies that high-tech firms operate mainly in the formal economy, while low-tech firms operate mainly underground.
Second, in our model agents can operate simultaneously in both sectors, because they choose the optimal levels of income and assets to disclose to the tax authorities. This is in line with empirical evidence showing that firms and individuals are seldom completely underground or completely transparent (Johnson et al., 2000)