We study the underground economy within a dynamic and stochastic general equilibrium framework. Our model combines limited tax enforcement with an otherwise standard two- sector neoclassical stochastic growth model. The Bayesian estimation of the model based on Italian data provides evidence in favor of an important underground sector in Italy, with a size that has increased steadily over the whole sample period. We show that this pattern is due to a steady increase in taxation. Fiscal policy experiments suggest that a moderate tax cut, along with a stronger effort in the monitoring process, causes a sizeable reduction in the size of the underground economy and provides a positive stimulus for the regular economy. Both of these effects jointly increase total fiscal revenues.

Renzo Orsi, Davide Raggi, Francesco Turino (2014). Size, trend, and policy implications of the underground economy. REVIEW OF ECONOMIC DYNAMICS, 17(3), 417-436 [10.1016/j.red.2013.11.001].

Size, trend, and policy implications of the underground economy

ORSI, RENZO;RAGGI, DAVIDE;TURINO, FRANCESCO
2014

Abstract

We study the underground economy within a dynamic and stochastic general equilibrium framework. Our model combines limited tax enforcement with an otherwise standard two- sector neoclassical stochastic growth model. The Bayesian estimation of the model based on Italian data provides evidence in favor of an important underground sector in Italy, with a size that has increased steadily over the whole sample period. We show that this pattern is due to a steady increase in taxation. Fiscal policy experiments suggest that a moderate tax cut, along with a stronger effort in the monitoring process, causes a sizeable reduction in the size of the underground economy and provides a positive stimulus for the regular economy. Both of these effects jointly increase total fiscal revenues.
2014
Renzo Orsi, Davide Raggi, Francesco Turino (2014). Size, trend, and policy implications of the underground economy. REVIEW OF ECONOMIC DYNAMICS, 17(3), 417-436 [10.1016/j.red.2013.11.001].
Renzo Orsi; Davide Raggi; Francesco Turino
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/212439
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