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Underground Economy And Fiscal Policies Modeling

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  • Albu, Lucian Liviu

    ()
    (Institute for Economic Forecasting)

Abstract

Over the last decades a growing concern over the phenomenon of the underground economy has increased attention among officials, politicians, and economists. There are several important reasons why officials and the general public should be concerned in post-communist countries about the real size of the underground economy, as following: an impressive development of underground economy occurred after the collapse of former communist regimes and general liberalization of economic activity; under a growing underground economy, macroeconomics policy is based on mistaken official indicators (such as: income, consumption, unemployment, etc.). In such situation, an extended underground sector may cause severe difficulties to politicians, because it "provides” unreliable official indicators; an accelerated increase in the size of the underground economy, usually caused by a rise in the overall burden of taxes and regulations, may lead to an erosion of the tax base, a decrease in tax receipts and thus to a further rise of the budget deficit (in case of Eastern countries, these are perhaps accentuated due to a weak government bonds market and of a high inflation). First part of this study deals with a critical survey of main approaches of underground (informal) sector in specialized literature; second part focuses on models existing in literature, on their comparative estimating results of the size of underground economy and evaluation of fiscal policy effects. Also, some our results obtained by using specific models to investigate problems of underground economy in East European countries are presented. * This research was undertaken with support from the European Commission's Phare ACE Programme 1994, Contract Number: 94-0139-F.

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Bibliographic Info

Paper provided by Institute for Economic Forecasting in its series Working Papers of Institute for Economic Forecasting with number 071202.

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Length: 104 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:rjr:wpiecf:071202

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Related research

Keywords: underground economy; Laffer curve; informal activity; fiscal policy; transition;

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Cited by:
  1. Lucian Liviu ALBU & Ion GHIZDEANU & Mărioara IORDAN, 2008. "Informal Economic Estimation Models at Macroeconomic Level. Some Theoretical and Methodologial Considerations," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 1(2), pages 177-190.
  2. Albu, Lucian Liviu & Kim, Byung Yeon & Duchene, Gerard, 2002. "AN ATTEMPT TO ESTIMATE THE SIZE OF INFORMAL ECONOMY BASED ON HOUSEHOLD BEHAVIOUR MODELING (l)," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 17-24, March.
  3. Dobrescu, Emilian, 1998. "Macromodels of the Romanian transition economy, Second edition," MPRA Paper 35825, University Library of Munich, Germany.
  4. Albu, Lucian-Liviu, 2007. "A model to estimate informal economy at regional level: Theoretical and empirical investigation," MPRA Paper 3760, University Library of Munich, Germany.
  5. Albu, Lucian-Liviu & Kim, Byung-Yeon & Duchene, Gerard, 2002. "Households’ activities in informal economy: size and behavioural aspects," MPRA Paper 13072, University Library of Munich, Germany.
  6. Albu, Lucian-Liviu & Nicolae, Mariana, 2003. "Use of households survey data to estimate the size of the informal economy in Romania," MPRA Paper 14286, University Library of Munich, Germany.
  7. Dobrescu, Emilian, 1996. "Macromodels of the Romanian transition Economy," MPRA Paper 35810, University Library of Munich, Germany.

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