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In the Shadow of Public Debt: Are there Relations between Public Debt and the Shadow Economy?

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Author Info

  • Aloys Prinz

    ()
    (Institute of Public Economics II, University of Münster, 48143 Münster, Germany)

  • Hanno Beck

    ()
    (Hochschule Pforzheim University, 75175 Pforzheim, Germany)

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    Abstract

    The question of this paper is whether there is a relation between the size of the shadow economy, the inflation tax and the debt-to-GDP ratio. This relationship is relevant for an understanding of sovereign debt crisis in a currency union due to the loss of a national inflation tax and due to tax evasion as a consequence of sizeable shadow economies. In this paper, empirical evidence is presented for the effect of the size of the shadow economy on the debt-to-GDP ratio as well as for the debt-increasing effect of the start of the European Monetary Union in 1999.

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    File URL: http://www.eap-journal.com/archive/v42_i2_07_Prinz_and_Beck.pdf
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    Bibliographic Info

    Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

    Volume (Year): 42 (2012)
    Issue (Month): 2 (September)
    Pages: 221-236

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    Handle: RePEc:eap:articl:v:42:y:2012:i:2:p:221-236

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    Related research

    Keywords: public debt; shadow economy; inflation tax; EMU;

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    References

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    1. Calvo, Guillermo A & Guidotti, Pablo E, 1993. "On the Flexibility of Monetary Policy: The Case of the Optimal Inflation Tax," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 667-87, July.
    2. Al-Marhubi, Fahim A., 2000. "Corruption and inflation," Economics Letters, Elsevier, vol. 66(2), pages 199-202, February.
    3. Kimbrough, Kent P., 1986. "The optimum quantity of money rule in the theory of public finance," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 277-284, November.
    4. Ercolani, Marco G., 2007. "Hidden Economies and the Socially Optimal Fiscal-Tax to Liquidity-Tax Ratio," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1(6), pages 1-32.
    5. Christopoulos, Dimitris K., 2003. "Does underground economy respond symmetrically to tax changes? Evidence from Greece," Economic Modelling, Elsevier, vol. 20(3), pages 563-570, May.
    6. Koreshkova, Tatyana A., 2006. "A quantitative analysis of inflation as a tax on the underground economy," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 773-796, May.
    7. Nicolini, Juan Pablo, 1998. "Tax evasion and the optimal inflation tax," Journal of Development Economics, Elsevier, vol. 55(1), pages 215-232, February.
    8. Fischer, Stanley, 1982. "Seigniorage and the Case for a National Money," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 295-313, April.
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