Optimal Fiscal Policy in the Presence of VAT Evasion: The Case of Bulgaria

Vasilev, Aleksandar (2018) Optimal Fiscal Policy in the Presence of VAT Evasion: The Case of Bulgaria. Czech Journal of Finance and Economics, 68 (4). pp. 399-414. ISSN 0015-1920

Full content URL: http://journal.fsv.cuni.cz/mag/article/show/id/141...

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Abstract

This paper explores the effects of fiscal policy in the presence of a VAT evasion channel,
and then compares and contrasts two regimes - the exogenous vs. optimal policy case. To
this end, a dynamic general-equilibrium model, calibrated to Bulgarian data (1999-2014),
is augmented with a government sector. The main findings from the computational
experiments performed in the paper are: (i) The optimal steady-state income tax rate is
zero; (ii) The benevolent Ramsey planner provides the optimal amount of the valuable
public services, which are now three times lower; (iii) The size of the grey sector is twice
lower; (iv) optimal steady-state consumption tax needed to finance the optimal level of
government spending is twice lower, as compared to the exogenous policy case.

Additional Information:The final published version of this article can be accessed online at http://journal.fsv.cuni.cz/mag/article/show/id/1412
Keywords:consumption tax, income tax, VAT evasion, general equilibrium, fiscal policy, Bulgaria
Subjects:N Business and Administrative studies > N330 Taxation
L Social studies > L130 Macroeconomics
L Social studies > L113 Economic Policy
Divisions:Lincoln International Business School
ID Code:33899
Deposited On:29 Oct 2018 08:35

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