Indeterminacy, Underground Activities and Tax Evasion

University of Aarhus Working Paper No. 2004-12

32 Pages Posted: 18 Jun 2008

See all articles by Francesco Busato

Francesco Busato

Aarhus University - School of Business and Social Sciences

Bruno Chiarini

University of Naples, Parthenope

Enrico Marchetti

University of Naples Parthenope - Italy

Multiple version iconThere are 2 versions of this paper

Date Written: November 22, 2004

Abstract

This paper introduces underground activities and tax evasion into a one sector dynamic general equilibrium model with external effects. The model presents a novel mechanism driving the self-fulfilling prophecies, which is triggered by the reallocation of resources to the underground sector to avoid the excess tax burden. This mechanism differs from the customary one, and it is complementary to it. In addition, the explicit introduction of an (even tiny) underground sector allows to reduce the aggregate degree of increasing returns required for indeterminacy, and for having well behaved input demand schedules (in the sense they slope down).

Keywords: Dynamic General Equilibrium Models, Fiscal Policy, Tax Evasion and Underground Activities, Sunspots

JEL Classification: E320, E13, E260, O40

Suggested Citation

Busato, Francesco and Chiarini, Bruno and Marchetti, Enrico, Indeterminacy, Underground Activities and Tax Evasion (November 22, 2004). University of Aarhus Working Paper No. 2004-12, Available at SSRN: https://ssrn.com/abstract=1147585 or http://dx.doi.org/10.2139/ssrn.1147585

Francesco Busato (Contact Author)

Aarhus University - School of Business and Social Sciences ( email )

Building 350
DK-8000 Aarhus C
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

HOME PAGE: http://www.econ.au.dk/afn

Bruno Chiarini

University of Naples, Parthenope ( email )

Via Generale Parisi 13
Napoli, 80133
Italy

Enrico Marchetti

University of Naples Parthenope - Italy ( email )

VIA MEDINA, 40 - SC. B - IIII PIANO
Via Generale Parisi, 13
NAPLES, 80133
Italy

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