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Multiplier–Accelerator Interaction in the Presence of an Underground Economy and Taxation

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  • Gerasimos T. Soldatos

    (Gerasimos T. Soldatos is at the American University of Athens, 15232 Athens, Greece, e-mail: soldgera@yahoo.com)

Abstract

This article introduces the underground economy into a standard multiplier-accelerator model with linear progressive income taxation. The main results are that this introduction increases the instability of the overall economy towards chaos, that tax policy plays a critical role in preserving stability even if in the sense of a uniform cycle and that the operation of the accelerator may be countering the negative effect of tax evasion on tax revenue. JEL Classification: O17, E32, H24

Suggested Citation

  • Gerasimos T. Soldatos, 2018. "Multiplier–Accelerator Interaction in the Presence of an Underground Economy and Taxation," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(2), pages 244-256, May.
    • Handle: RePEc:sae:mareco:v:12:y:2018:i:2:p:244-256
    DOI: 10.1177/0973801018757235
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    References listed on IDEAS

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    1. Luciano Fanti & Piero Manfredi, 2003. "Progressive Income Taxation and Economic Cycles: a Multiplier-Accelerator Model," Discussion Papers 2003/11, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
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    3. Gerasimos T. Soldatos, 2016. "An Anti-Austerity Policy Recipe Against Debt Accumulation in the Presence of Hidden Economy," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(2), pages 90-99, February.
    4. John Creedy & Norman Gemmell, 2007. "Tax Revenues and Fiscal Drag: An Introduction," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 40(3), pages 323-338, September.
    5. Gerasimos T Soldatos, 2016. "An Anti-Austerity Policy Recipe Against Debt Accumulation in the Presence of Hidden Economy," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(2), pages 90-99.
    6. Turnovsky,Stephen J., 1977. "Macroeconomic Analysis and Stabilization Policy," Cambridge Books, Cambridge University Press, number 9780521291873.
    7. Ross Guest & Anthony J. Makin, 2011. "In the Long Run, the Multiplier is Dead: Lessons from a Simulation," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 18(1), pages 13-22.
    8. Renzo Orsi & Davide Raggi & Francesco Turino, 2014. "Size, Trend, and Policy Implications of the Underground Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 417-436, July.
    9. Catalina Granda-Carvajal, 2010. "The Unofficial Economy and the Business Cycle: A Test for Theories," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 573-586.
    10. Frank Westerhoff, 2006. "Samuelson's multiplier-accelerator model revisited," Applied Economics Letters, Taylor & Francis Journals, vol. 13(2), pages 89-92.
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    More about this item

    Keywords

    Multiplier-accelerator; Underground economy; Taxation; Stabilisation;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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