Indeterminacy, Underground Activities and Tax Evasion

Francesco Busato (), Bruno Charini and Enrico Marchetti ()

Economics Working Papers from School of Economics and Management, University of Aarhus

Abstract: This paper introduces underground activities and tax evasion into a one sector dynamic general equilibrium model with external effects. The model presents a novel mechanism driving the self-fulfilling prophecies, which is triggered by the reallocation of resources to the underground sector to avoid the excess tax burden. This mechanism differs from the customary one, and it is complementary to it. In addition, the explicit introduction of an (even tiny) underground sector allows to reduce the aggregate degree of increasing returns required for indeterminacy, and for having well behaved input demand schedules (in the sense they slope down).

Keywords: Dynamic General Equilibrium Models; Fiscal Policy; Tax Evasion and Underground Activities; Indeterminacy and Sunspots. (search for similar items in EconPapers)
JEL-codes: E32 E13 E26 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-dge
Date: 2004-11-21
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Related works:
Working Paper: Indeterminacy, Underground Activities and Tax Evasion (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:aah:aarhec:2004-12

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