Treasury V Dodgers. A Tale of Fiscal Consolidation and Tax Evasion

Maurizio Bovi () and Peter Claeys ()

No 93 Classification-JEL E62, E63, O17, ISAE Working Papers from ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY)

Abstract: The government influences the equilibrium size of hidden activity. Higher taxes give an incentive to evade. The provision of public services, social transfers and public employment may have offsetting effects on the underground economy. The budget constraint makes the relation between the shadow economy, taxes and spending inherently dynamic. A lack of time series data has prohibited the analyisis of these feedback effects. We take advantage of a unique dataset on the Italian underground economy. We find that over the period 1980-2004 the underground economy reacts to changes in government spending as well as to variations in the tax burden.

Keywords: fiscal policy; policy rules; taxes; debt; shadow economy; Italy. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pbe
Date: 2008-02
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Persistent link: http://EconPapers.repec.org/RePEc:isa:wpaper:93

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