We construct a dynamic, general equilibrium model of tax evasion where agents choose to report some of their income. Unreported income requires using a payment method that avoids recordkeeping – cash. Trade using cash to avoid taxes is the theoretical measure of the shadow economy from our...

We construct a dynamic general equilibrium model of tax evasion where agents choose to report some of their income. Unreported income requires using a payment method that avoids recordkeeping in some markets—cash. Trade using cash to avoid taxes is the ‘shadow economy’ in our model. We...

Firms started repaying their debts during 2008-2009, and they did so while simultaneously accumulating highly liquid assets. These two observations are puzzling if one believes firms are purportedly starving for credit but cannot obtain it.

In monetary models in which agents are subject to trading shocks there is typically an ex-post inefficiency in that some agents are holding idle balances while others are cash constrained. This inefficiency creates a role for financial intermediaries, such as banks, who accept nominal deposits...