Tax evasion and financial accelerator: A corporate sector analysis for the US business cycle

Bruno Chiarini, Maria Ferrara and Elisabetta Marzano

Economic Modelling, 2022, vol. 108, issue C

Abstract: This paper investigates the consequences of willful tax noncompliance in the US corporate sector on the business cycle when financial frictions operate. In this setting, we simulate a risk shock that propagates its effects in the credit channel via a financial accelerator mechanism. In addition to emphasizing the role of tax evasion as a self-financing mechanism, the paper provides a twofold result, producing nonnegligible consequences for business cycle analysis. First, conditioned on risk shock, tax evasion strengthens the effects of the financial accelerator and amplifies macroeconomic fluctuations considerably. Second, endogenous tax evasion dynamics generates a reallocation of resources from productive to consumption uses over the business cycle.

Keywords: Tax evasion; Financial accelerator; Corporate sector; Business cycle; DSGE Modeling (search for similar items in EconPapers)
JEL-codes: E26 E32 E44 H26 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:108:y:2022:i:c:s0264999322000268

DOI: 10.1016/j.econmod.2022.105780

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