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

Aleksandar Vasilev

Journal of Economics and Econometrics, 2017, vol. 60, issue 2, 1-13

Abstract: We show that in an 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 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. Un- der 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 Sector; Equilibrium (In)determinacy. (search for similar items in EconPapers)
JEL-codes: D51 D91 H22 J46 O41 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://ideas.repec.org/a/eei/journl/v60y2017i2p1-13.html
Full text for ScienceDirect subscribers only

Related works:
Working Paper: 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 (2016)
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: https://EconPapers.repec.org/RePEc:eei:journl:v:60:y:2017:i:2:p:1-13

Access Statistics for this article

More articles in Journal of Economics and Econometrics from Economics and Econometrics Society Contact information at EDIRC.
Bibliographic data for series maintained by Julia van Hove ().