Steady State Laffer Curve with the Underground Economy

Francesco Busato and Bruno Chiarini

Public Finance Review, 2013, vol. 41, issue 5, 608-632

Abstract: This article 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. From a revenue maximizing perspective, the key policy messages are that bringing tax payers to compliance would be better than threatening 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 model; fiscal policy; tax evasion; underground activities (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Steady state Laffer curve with the underground economy (2012)
Working Paper: Steady state Laffer curve with the underground economy (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:41:y:2013:i:5:p:608-632

DOI: 10.1177/1091142113487006

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