Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/179408
Authors: 
Vasilev, Aleksandar
Year of Publication: 
2017
Series/Report no.: 
EERI Research Paper Series 07/2017
Abstract: 
We show that in an exogenous growth model with informal economy calibrated to Bulgarian data under the progressive taxation regime (1993-2007), the economy exhibits equilibrium indeterminacy due to the presence of an unofficial production. These results are in line with the findings in Benhabib and Farmer (1994, 1996) and Farmer (1999). Also, the findings in this paper are in contrast to Guo and Lansing (1988) who argue that progressive taxation works as an automatic stabilizer. Un- der the flat tax regime (2008-14), the economy calibrated to Bulgarian data displays saddle-path stability. The decrease in the average effective tax rate addresses the indeterminacy issue and eliminates the "sink" dynamics.
Subjects: 
Progressive taxation
Informal Sector
Equilibrium (In)determinacy
JEL: 
H22
J46
D51
D91
O41
Document Type: 
Working Paper

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