Under limited asset market participation fiscal consolidations have a deep and prolonged deflationary effect, causing substantial short term welfare losses to households whose access to financial markets is limited. We show that it is possible to both reduce public debt and boost consumption of...

This paper studies equilibrium effect of fiscal policy disturbances within a dynamic general equilibrium model where tax evasion and underground activities are explicitly incorporated. There are three main results. (i) The underground sector mitigates the distortionary impact of fiscal policies,...

This paper shows under indeterminacy and tax evasion, an increase in corporate, labor or income tax rates pushes the economy into an expansionary pattern. These effects are reversed when the steady state is saddle-path stable.

This paper studies equilibrium effects of fiscal policy within a dynamic general equilibrium model where tax evasion and underground activities are explicitly incorporated. In particular, we show that a dynamic general equilibrium with tax evasion may give a rational justification for a variant...

This paper studies equilibrium effects of fiscal policy within a dynamic general equilibrium model where tax evasion and underground activities are explicitly incorporated. In particular, we show that a dynamic general equilibrium with tax evasion may give a rational justification for a variant...