Steady state Laffer curve with the underground economy
AbstractThis paper studies equilibrium effects of fiscal policy within a dynamic general equilibrium model where tax evasion and underground activities are explicitly incorporated. In particular, we show that a dynamic general equilibrium with tax evasion may give a rational justification for a variant of the Laffer curve for a plausible parameterization. In this respect, the paper also identifies the different parameterization of the model formulation with tax evasion under which a Laffer curve exist. From a revenue maximizing perspective, the key policy messages are that bringing tax payers to compliance would be better than announcing to punish them if convicted, and that an economy without problems of compliance is much more sensitive to myopic behavior.
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Bibliographic InfoPaper provided by D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy in its series Discussion Papers with number 2_2009.
Date of creation: 06 Oct 2009
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Two-sector Dynamic General Equilibrium Models; Fiscal Policy; Tax Evasion and Underground Activities.;
Other versions of this item:
- Francesco Busato & Bruno Chiarini, 2013. "Steady State Laffer Curve with the Underground Economy," Public Finance Review, , vol. 41(5), pages 608-632, September.
- Francesco Busato & Bruno Chiarini, 2012. "Steady state Laffer curve with the underground economy," Working Papers 8, Department of the Treasury, Ministry of the Economy and of Finance.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- E26 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-24 (All new papers)
- NEP-DGE-2009-10-24 (Dynamic General Equilibrium)
- NEP-MAC-2009-10-24 (Macroeconomics)
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