Size, Trend, and Policy Implications of the Underground Economy
AbstractWe study the underground economy in a dynamic and stochastic general equilibrium framework. Our model combines limited tax enforcement with an otherwise standard two-sector neoclassical stochastic growth model. The Bayesian estimation of the model based on Italian data provides evidence in favor of an important underground sector in Italy, with a size that has steadily increased over the whole sample period. We show that this pattern is due to a persistent increase in taxation. Fiscal policy experiments suggest that a moderate tax cut, along with a stronger effort in the monitoring process, causes a sensitive reduction in the size of the underground economy and positive stimulus to the regular sector that jointly increase the total fiscal revenues.
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Bibliographic InfoPaper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp818.
Date of creation: Mar 2012
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Find related papers by JEL classification:
- E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-21 (All new papers)
- NEP-DGE-2012-03-21 (Dynamic General Equilibrium)
- NEP-IUE-2012-03-21 (Informal & Underground Economics)
- NEP-MAC-2012-03-21 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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