Recent studies identify Marginal Efficiency of Investment (MEI) shocks as important drivers of the business cycle. However, Dynamic Stochastic General Equilibrium (DSGE) models struggle to explain macroeconomic co-movements between consumption and key real variables after a MEI shock. In that context, this paper aims to investigate the role of tax eva- sion, given its far from negligible e¤ects on key macroeconomic variables. Moreover, engaging in tax evasion practices is often an answer to finan- cial constraints, which have been recognized as important determinants of cyclical fluctuations. We use a medium-scale New Keynesian DSGE model that combines tax evasion with financial frictions à la Bernanke, Gertler, and Gilchrist (1999) to simulate a MEI shock. Our contribution shows that entrepreneurial tax evasion can solve the co-movement problem to a fair extent.
Tax Evasion, Investment Shocks, and the Consumption Puzzle: A DSGE Analysis with Financial Frictions
marzano e.;chiarini b.;ferrara maria
2020-01-01
Abstract
Recent studies identify Marginal Efficiency of Investment (MEI) shocks as important drivers of the business cycle. However, Dynamic Stochastic General Equilibrium (DSGE) models struggle to explain macroeconomic co-movements between consumption and key real variables after a MEI shock. In that context, this paper aims to investigate the role of tax eva- sion, given its far from negligible e¤ects on key macroeconomic variables. Moreover, engaging in tax evasion practices is often an answer to finan- cial constraints, which have been recognized as important determinants of cyclical fluctuations. We use a medium-scale New Keynesian DSGE model that combines tax evasion with financial frictions à la Bernanke, Gertler, and Gilchrist (1999) to simulate a MEI shock. Our contribution shows that entrepreneurial tax evasion can solve the co-movement problem to a fair extent.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
