TY - BOOK ID - 84539462 TI - An Analysis of the Underground Economy and its Macroeconomic Consequences AU - Dabla-Norris, Era. AU - Feltenstein, Andrew. PY - 2003 SN - 1462359159 1452722048 1281604917 9786613785602 145189192X PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Banks and Banking KW - Budgeting KW - Public Finance KW - Taxation KW - Economics: General KW - Macroeconomics KW - Tax Evasion and Avoidance KW - Informal Economy KW - Underground Econom KW - Debt KW - Debt Management KW - Sovereign Debt KW - Banks KW - Depository Institutions KW - Micro Finance Institutions KW - Mortgages KW - National Budget KW - Budget Systems KW - Labor Economics: General KW - Economics of specific sectors KW - Public finance & taxation KW - Banking KW - Budgeting & financial management KW - Labour KW - income economics KW - Informal economy KW - Government debt management KW - Tax evasion KW - Budget planning and preparation KW - Economic sectors KW - Public financial management (PFM) KW - Revenue administration KW - Labor KW - Informal sector KW - Economics KW - Debts, Public KW - Banks and banking KW - Budget KW - Labor economics KW - Pakistan UR - https://www.unicat.be/uniCat?func=search&query=sysid:84539462 AB - 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. ER -