Fiscal consolidation policies and the underground economy: The case of Greece
European University Institute
In the aftermath of the recent economic crisis, policy making has mainly focused on the implementation of sizeable and long-lived fiscal consolidation plans including increases in taxation and cuts in government spending to reduce deficit and debt levels. The proposed research project aims at assessing different forms of fiscal consolidation policies in an economy characterized by the presence of an underground sector. To this end, we will calibrate for Greece a Dynamic Stochastic General Equilibrium (DSGE) model of involuntary unemployment with production of legal commodities and services that are deliberately concealed from the public authorities to avoid the payment of taxes or social security contributions. In this framework we will examine both the output and unemployment effects of tax-based versus expenditure-based fiscal adjustments.
This project was evaluated and funded as part of the Foundation’s effort to support research teams with all their members being under 40 years old.
Final report (in Greek)
Evi Pappa, Professor, European University Institute
Evgenia Vella, Postdoctoral Researcher, European University Institute