Fiscal consolidation with tax evasion and corruption
Using cross country data we show that tax evasion and corruption are highly important for determining the size of the .scal multiplier. We introduce these two features in a New Keynesian model with search and matching frictions, in order to revisit the e¤ects of tax and expenditure based consolidati...
| Autores: | , , |
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| Tipo de recurso: | artículo |
| Fecha de publicación: | 2015 |
| País: | España |
| Institución: | Universitat Autònoma de Barcelona |
| Repositorio: | Dipòsit Digital de Documents de la UAB |
| Idioma: | inglés |
| OAI Identifier: | oai:ddd.uab.cat:203789 |
| Acceso en línea: | https://ddd.uab.cat/record/203789 https://dx.doi.org/urn:doi:10.1016/j.jinteco.2014.12.004 |
| Access Level: | acceso abierto |
| Palabra clave: | DSGE model Matching frictions Shadow economy Corruption Fiscal consolidation VAR Policy analysis |
| Sumario: | Using cross country data we show that tax evasion and corruption are highly important for determining the size of the .scal multiplier. We introduce these two features in a New Keynesian model with search and matching frictions, in order to revisit the e¤ects of tax and expenditure based consolidations. VAR evidence for Italy suggests that expenditure based consolidations reduce tax evasion signi.cantly, while tax based ones increase it. In the model, expenditure cuts reduce demand for both formal and informal goods, and, thus, tax evasion. Tax hikes induce agents to work and produce more in the informal sector, which is less productive, and so imply higher output and welfare losses. We use the model to assess the losses from the recent .scal consolidation plans in Italy, Spain, Portugal and Greece. Policy conclusions are sensitive to the model.s assumptions. Counterfactual exercises highlight the benefit of .ghting tax evasion and corruption in economies undertaking .scal consolidation. |
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