The Macroeconomic Implications of Fiscal Policy with Tax Evasion

Francesco Busato, Bruno Chiarini and Guido M. Rey ()
Additional contact information
Guido M. Rey: Department of Economics, University of Aarhus, Denmark, Postal: 8000 Aarhus C, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper studies equilibrium effect of fiscal policy disturbances within a dynamic general equilibrium model where tax evasion and underground activities are explicitly incorporated. There are three main results. (i) The underground sector mitigates the distortionary impact of fiscal policies, while lessening the drop (and the rise) of aggregate production after restrictive (expansionary) tax shocks. (ii) Tax evasion and underground economy can be seen as an economic mechanism that rationalizes the arise of non-keynesian effects in response to fiscal policy shocks. (iii) A dynamic general equilibrium with tax evasion gives a rational justification for a Laffer curve.

Keywords: Two-sector Dynamic General Equilibrium Models; Fiscal Policy; Tax Evasion and Underground Activities (search for similar items in EconPapers)
JEL-codes: E13 E26 E32 H20 (search for similar items in EconPapers)
Pages: 14
Date: 2005-03-23
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://repec.econ.au.dk/repec/afn/wp/05/wp05_04.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: https://EconPapers.repec.org/RePEc:aah:aarhec:2005-04

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business Economics, Aarhus University
Bibliographic data for series maintained by ().