Multiplier–Accelerator Interaction in the Presence of an Underground Economy and Taxation

Gerasimos Soldatos

Margin: The Journal of Applied Economic Research, 2018, vol. 12, issue 2, 244-256

Abstract: This article introduces the underground economy into a standard multiplier-accelerator model with linear progressive income taxation. The main results are that this introduction increases the instability of the overall economy towards chaos, that tax policy plays a critical role in preserving stability even if in the sense of a uniform cycle and that the operation of the accelerator may be countering the negative effect of tax evasion on tax revenue. JEL Classification: O17, E32, H24

Keywords: Multiplier-accelerator; Underground economy; Taxation; Stabilisation (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:sae:mareco:v:12:y:2018:i:2:p:244-256

DOI: 10.1177/0973801018757235

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