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Book Cover
Author Dabla-Norris, Era, author

Title An analysis of the underground economy and its macroeconomic consequences / Era Dabla-Norris and Andrew Feltenstein
Published [Washington, D.C.] : International Monetary Fund, [2003]
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Description 1 online resource (26 pages)
Series IMF working paper ; WP/03/23
IMF working paper ; WP/03/23
Summary This paper develops a dynamic computable general equilibrium model in which optimizing agents evade taxes by operating in the underground economy. The cost to firms of evading taxes is that they find themselves subject to credit rationing from banks. Our model simulations show that in the absence of budgetary flexibility to adjust expenditures, raising tax rates too high drives firms into the underground economy, thereby reducing the tax base. Aggregate investment in the economy is lowered because of credit rationing. Taxes that are too low eliminate the underground economy, but result in unsustainable budget and trade deficits. Thus, the optimal rate of taxation, from a macroeconomic point of view, may lead to some underground activity
Bibliography Includes bibliographical references (pages 25-26)
Notes Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. MiAaHDL
digitized 2010 HathiTrust Digital Library committed to preserve pda MiAaHDL
Print version record
Subject Feltenstein, Andrew.
IMF Institute.
Credit control -- Econometric models.
Fiscal policy -- Econometric models.
Informal sector (Economics) -- Effect of taxation on -- Econometric models
Form Electronic book
Author International Monetary Fund.
ISBN 1281604917