Fiscal consolidation plans with underground economy
Fiscal consolidation literature often neglects that there are economies characterized by sizable underground sectors, with their mechanisms of response to fiscal policy shocks. Therefore, reliable analyses of fiscal consolidation plans call for the decomposition of Gross Domestic Product in its regu...
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| Veröffentlicht in: | Economic inquiry 2025-01, Vol.63 (1), p.144-159 |
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| container_title | Economic inquiry |
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| creator | Ferrara, Maria Fiorelli, Cristiana Marzano, Elisabetta Varlese, Monica |
| description | Fiscal consolidation literature often neglects that there are economies characterized by sizable underground sectors, with their mechanisms of response to fiscal policy shocks. Therefore, reliable analyses of fiscal consolidation plans call for the decomposition of Gross Domestic Product in its regular and hidden components. We investigate fiscal consolidation effects in the context of tax evasion for the Italian economy. Results show that a temporary cut in public spending associated with a permanent drop in tax rate yet entails tax evasion reduction. The main underlying mechanism is the strong responsiveness of the underground sector, implying a reallocation of resources toward the regular sector. |
| doi_str_mv | 10.1111/ecin.13263 |
| format | Article |
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Therefore, reliable analyses of fiscal consolidation plans call for the decomposition of Gross Domestic Product in its regular and hidden components. We investigate fiscal consolidation effects in the context of tax evasion for the Italian economy. Results show that a temporary cut in public spending associated with a permanent drop in tax rate yet entails tax evasion reduction. 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| ispartof | Economic inquiry, 2025-01, Vol.63 (1), p.144-159 |
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| language | eng |
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| source | PAIS Index; Wiley Journals Collection |
| subjects | DSGE modeling fiscal consolidation plans Fiscal policy GDP Government spending Gross Domestic Product Informal economy Responsiveness Tax evasion Tax rates Taxation underground economy |
| title | Fiscal consolidation plans with underground economy |
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