Investment Shocks, Tax Evasion and the Consumption Puzzle: A DSGE Analysis with Financial Frictions

30 Pages Posted: 25 Aug 2016

See all articles by Bruno Chiarini

Bruno Chiarini

University of Naples, Parthenope

Maria Ferrara

Università degli Studi di Napoli “Parthenope”

Elisabetta Marzano

University of Naples Parthenope - Department of Economic Studies (DES)

Date Written: July 2016

Abstract

This paper contributes to the GDP-consumption co-movement puzzle literature investigating the role of tax evasion in explaining the consumption path after a Marginal Efficiency of Investment shock. We use an otherwise standard medium-scale New Keynesian DSGE model combining tax evasion with financial frictions à la Bernanke, Gertler, Gilchrist (1999). The main result of our paper shows that tax evasion can considerably shrink the GDP-consumption co-movement puzzle area.

Keywords: tax evasion, investment shocks, DSGE modelling, financial frictions, GDP-consumption comovement puzzle

JEL Classification: E220, E320, E440, E510, E620, G100, G210, G300, H200

Suggested Citation

Chiarini, Bruno and Ferrara, Maria and Marzano, Elisabetta, Investment Shocks, Tax Evasion and the Consumption Puzzle: A DSGE Analysis with Financial Frictions (July 2016). CESifo Working Paper Series No. 6015, Available at SSRN: https://ssrn.com/abstract=2829258

Bruno Chiarini

University of Naples, Parthenope ( email )

Via Generale Parisi 13
Napoli, 80133
Italy

Maria Ferrara

Università degli Studi di Napoli “Parthenope” ( email )

Naples
Italy

Elisabetta Marzano (Contact Author)

University of Naples Parthenope - Department of Economic Studies (DES) ( email )

via Medina 40
Naples, 80133
Italy

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