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Steady state Laffer curve with the underground economy

Francesco Busato () and Bruno Chiarini

Discussion Papers from D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy

Abstract: This paper 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. In this respect, the paper also identifies the different parameterization of the model formulation with tax evasion under which a Laffer curve exist. From a revenue maximizing perspective, the key policy messages are that bringing tax payers to compliance would be better than announcing 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 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)
Date: 2009-10-06
New Economics Papers: this item is included in nep-dge and nep-mac
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Related works:
Journal Article: Steady State Laffer Curve with the Underground Economy (2013) Downloads
Working Paper: Steady state Laffer curve with the underground economy (2012) Downloads
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