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Indeterminacy, Underground Activities and Tax Evasion

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Author Info

  • Francesco Busato
  • Bruno Charini
  • Enrico Marchetti

    ()
    (Department of Economics, University of Aarhus, Denmark)

Abstract

This paper introduces underground activities and tax evasion into a one sector dynamic general equilibrium model with external effects. The model presents a novel mechanism driving the self-fulfilling prophecies, which is triggered by the reallocation of resources to the underground sector to avoid the excess tax burden. This mechanism differs from the customary one, and it is complementary to it. In addition, the explicit introduction of an (even tiny) underground sector allows to reduce the aggregate degree of increasing returns required for indeterminacy, and for having well behaved input demand schedules (in the sense they slope down).

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File URL: ftp://ftp.econ.au.dk/afn/wp/04/wp04_12.pdf
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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2004-12.

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Length: 29
Date of creation: 21 Nov 2004
Date of revision:
Handle: RePEc:aah:aarhec:2004-12

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Dynamic General Equilibrium Models; Fiscal Policy; Tax Evasion and Underground Activities; Indeterminacy and Sunspots.;

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References

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Citations

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Cited by:
  1. Maurizio Bovi & Peter Claeys, 2008. "Treasury V Dodgers. A Tale of Fiscal Consolidation and Tax Evasion," ISAE Working Papers 93 Classification-JEL E62, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
  2. Giuseppe Ciccarone & Francesco Giuli & Enrico Marchetti, 2012. "Underground labor, search frictions and macroeconomic fluctuations," Departmental Working Papers of Economics - University 'Roma Tre' 0159, Department of Economics - University Roma Tre.
  3. Francesco Busato & Bruno Chiarini, 2013. "Steady State Laffer Curve with the Underground Economy," Public Finance Review, , vol. 41(5), pages 608-632, September.

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