Steady state Laffer curve with the underground economy

Francesco Busato and Bruno Chiarini ()

Discussion Papers from D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy

Abstract: This paper studies equilibrium effects of fiscal policy within a dynamic general equilibrium model where tax evasion and underground activities are explicitly incorporated. In particular, we show that a dynamic general equilibrium with tax evasion may give a rational justification for a variant of the Laffer curve for a plausible parameterization. In this respect, the paper also identifies the different parameterization of the model formulation with tax evasion under which a Laffer curve exist. From a revenue maximizing perspective, the key policy messages are that bringing tax payers to compliance would be better than announcing to punish them if convicted, and that an economy without problems of compliance is much more sensitive to myopic behavior.

Keywords: Two-sector Dynamic General Equilibrium Models; Fiscal Policy; Tax Evasion and Underground Activities. (search for similar items in EconPapers)
JEL-codes: E32 E13 H20 E26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2009-10-06
View list of references

Downloads: (external link)
http://economia.uniparthenope.it/ise/sito/DP/DP_2_2009.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:prt:dpaper:2_2009

Access Statistics for this paper

More papers in Discussion Papers from D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy
Contact information at EDIRC.
Series data maintained by Antonietta Milano ().