Franklin

An Analysis of the Underground Economy and its Macroeconomic Consequences [electronic resource] Dabla-Norris, Era.

Author/Creator:
Dabla-Norris, Era.
Publication:
Washington, D.C. : International Monetary Fund, 2003.
Format/Description:
Government document
Book
1 online resource (26 p.)
Series:
IMF eLibrary
IMF Working Papers; Working Paper No. 03/23.
IMF Working Papers; Working Paper No. 03/23
Status/Location:
Loading...

Options
Location Notes Your Loan Policy

Details

Local subjects:
Aggregate demand. (search)
Banking. (search)
Budget constraint. (search)
Budget deficit. (search)
Budgetary flexibility. (search)
Commercial banks. (search)
Computable General Equilibrium Models. (search)
Corporate tax. (search)
Corporate tax burden. (search)
Corporate tax rate. (search)
Corporate taxes. (search)
Credit markets. (search)
Economic models. (search)
Fiscal austerity. (search)
Foreign borrowing. (search)
Foreign currency. (search)
Foreign debt. (search)
Foreign interest obligations. (search)
Government spending. (search)
Income tax rate. (search)
Judicial system. (search)
Outstanding debt. (search)
Private investment. (search)
Private investor. (search)
Public debt. (search)
Public expenditures. (search)
Public finance. (search)
Public finances. (search)
Rate of investment. (search)
Rate of return. (search)
Rates of return. (search)
Return on investment. (search)
Tax base. (search)
Tax bases. (search)
Tax burden. (search)
Tax compliance. (search)
Tax Evasion. (search)
Tax increase. (search)
Tax increases. (search)
Tax payment. (search)
Tax payments. (search)
Tax rate. (search)
Tax rates. (search)
Tax regime. (search)
Tax returns. (search)
Tax revenues. (search)
Tax system. (search)
Taxation. (search)
Pakistan. (search)
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.
Notes:
Description based on print version record.
Contributor:
Dabla-Norris, Era.
Feltenstein, Andrew.
Other format:
Print Version:
ISBN:
1451844069:
9781451844061
ISSN:
1018-5941
Publisher Number:
10.5089/9781451844061.001
Access Restriction:
Restricted for use by site license.