Optimal Fiscal Policy in the Presence of VAT Evasion: The Case of Bulgaria

Aleksandar Vasilev

Czech Journal of Economics and Finance (Finance a uver), 2018, vol. 68, issue 4, 399-414

Abstract: This paper explores the effects of fiscal policy in the presence of a VAT evasion channel, and then compares and contrasts two regimes - the exogenous vs. optimal policy case. To this end, a dynamic general-equilibrium model, calibrated to Bulgarian data (1999-2014), is augmented with a government sector. The main findings from the computational experiments performed in the paper are: (i) The optimal steady-state income tax rate is zero; (ii) The benevolent Ramsey planner provides the optimal amount of the valuable public services, which are now three times lower; (iii) The size of the grey sector is twice lower; (iv) optimal steady-state consumption tax needed to finance the optimal level of government spending is twice lower, as compared to the exogenous policy case.

Keywords: consumption tax; income tax; VAT evasion; general equilibrium; fiscal policy; Bulgaria (search for similar items in EconPapers)
JEL-codes: D58 E26 H26 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Optimal fiscal policy in the presence of VAT evasion: the case of Bulgaria (2018)
Working Paper: Optimal fiscal policy in the presence of VAT evasion: the case of Bulgaria (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:68:y:2018:i:4:p:399-414

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