Data: 01/12/2010 - 12.30 – 14.30

Autore: Raffaella Basile, Elisabetta Marzano - Mef – Università di Napoli, Parthenope

Abstract: This paper analyses the effects of fiscal policy in Italy by employing a database containing two statistical novelties, quarterly fiscal variables on accrual basis and a time series estimate of tax evasion for the period 1981:1-2006:4. Following the Agency Revenue suggestions, we use in a VECM the time series of the concealed VAT base as a proxy for the size of “unreported production”, and define a regular GDP measure constructed as GDP net of government expenditure and evaded VAT base. The results reveals that we cannot rely upon the estimates of the fiscal policy’s multipliers in countries with a sizeable tax evasion unless one disentangles the hidden and the regular components of the GDP. Changes in public spending and tax rate generate a reallocation from underground to the regular economy which contributes to obscure the spending and tax effect on total GDP. In this setup the spending multiplier show large long-run effects. The drop in regular output after an increase in tax rate becomes dramatic in a longer period producing a remarkable increase in tax evasion.

JEL Classification: C32, E62, H26, H62.
Keywords: fiscal policy, VECM, fiscal multipliers, regular GDP, tax evasion