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.
Size, trend, and policy implications of the underground economy / Renzo Orsi; Davide Raggi; Francesco Turino. - In: REVIEW OF ECONOMIC DYNAMICS. - ISSN 1094-2025. - STAMPA. - 17:3(2014), pp. 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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.