Austerity Plans and Tax Evasion: Theory and Evidence from Greece

F. Pappad and Yanos Zylberberg
Authors registered in the RePEc Author Service: Francesco Pappadà

Working papers from Banque de France

Abstract: The unprecedented tax hikes implemented in Greece in 2010 generated a much lower than expected increase in tax revenues. In this paper, we document a new stylized fact explaining this gap: the strong increase of tax evasion. We then analyze the response of the economy to tax hikes in a stylized model where firms adjust the share of their declared activity. We calibrate the model to firm-level balance sheet data for Greece and quantify the response of tax evasion to the 2010 fiscal adjustment. One third of the tax increase is lost because small and medium size firms expand their share of non-declared activity. In turn, this lowers their borrowing capacity and contributes to non-negligible output losses.

Keywords: tax evasion; austerity plans; credit frictions. (search for similar items in EconPapers)
JEL-codes: E02 E62 H26 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2015
New Economics Papers: this item is included in nep-iue and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Austerity plans and tax evasion: theory and evidence from Greece (2014)
Working Paper: Austerity plans and tax evasion: theory and evidence from Greece (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:546

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