Fiscal consolidation with tax evasion and corruption

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dc.contributor.author Pappa, Evi
dc.contributor.author Sajedi, Rana
dc.contributor.author Vella, Eugenia
dc.date.accessioned 2022-05-11T17:47:00Z
dc.date.available 2022-05-11T17:47:00Z
dc.date.issued 2015-07-01
dc.identifier.bibliographicCitation Pappa, E., Sajedi, R., & Vella, E. (2015). Fiscal consolidation with tax evasion and corruption. Journal of International Economics, 96, pp. S56-S75
dc.identifier.issn 0022-1996
dc.identifier.uri http://hdl.handle.net/10016/34783
dc.description.abstract Cross-country evidence highlights the importance of tax evasion and corruption in determining the size of fiscal multipliers. We introduce these two features in a New Keynesian model and revisit the effects of fiscal consolidations. VAR evidence for Italy suggests that spending cuts reduce tax evasion, while tax hikes increase it. In the model, spending cuts induce a reallocation of production towards the formal sector, thus reducing tax evasion. Tax hikes increase the incentives to produce in the less productive shadow sector, implying higher output and unemployment losses. Corruption further amplifies these losses by requiring larger hikes in taxes to reduce debt. We use the model to assess the recent fiscal consolidation plans in Greece, Italy, Portugal and Spain. Our results corroborate the evidence of increasing levels of tax evasion during these consolidations and point to significant output and welfare losses, which could be reduced substantially by combating tax evasion and corruption.
dc.language.iso eng
dc.publisher Elsevier
dc.rights © 2014 Elsevier B.V. All rights reserved.
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Tax evasion
dc.subject.other Corruption
dc.subject.other Austerity
dc.subject.other VAR
dc.subject.other DSGE-model
dc.title Fiscal consolidation with tax evasion and corruption
dc.type article
dc.subject.jel E02
dc.subject.jel E62
dc.subject.jel H30
dc.subject.eciencia Economía
dc.subject.eciencia Política
dc.identifier.doi https://doi.org/10.1016/j.jinteco.2014.12.004
dc.rights.accessRights openAccess
dc.type.version acceptedVersion
dc.identifier.publicationfirstpage S56
dc.identifier.publicationissue Supl.1
dc.identifier.publicationlastpage S75
dc.identifier.publicationtitle JOURNAL OF INTERNATIONAL ECONOMICS
dc.identifier.publicationvolume 96
dc.identifier.uxxi AR/0000029311
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