Progressive taxation and (in)stability in an exogenous growth model with an informal sector

Aleksandar Vasilev

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: We show that in a exogenous growth model with informal economy calibrated to Bulgarian data under the progressive taxation regime (1993-2007), the economy exhibits equilibrium indeterminacy due to the the presence of an unofficial production. These results are in line with the findings in Benhabib and Farmer (1994, 1996) and Farmer (1999). Also, the findings in this paper are in contrast to Guo and Lansing (1988) who argue that progressive taxation works as an automatic stabilizer. Under the flat tax regime (2008-14), the economy calibrated to Bulgarian data displays saddle-path stability. The decrease in the average effective tax rate addresses the indeterminacy issue and eliminates the "sink" dynamics.

Keywords: Progressive taxation; Informal economy; Equilibrium (in)determinacy (search for similar items in EconPapers)
JEL-codes: D91 J46 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cse, nep-iue, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Progressive taxation and (in)stability in an exogenous growth model with an informal sector (2017)
Working Paper: Progressive taxation and (in)stability in an exogenous growth model with an informal sector (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:144525

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