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Tax evasion and financial accelerator: A corporate sector analysis for the US business cycle

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  • Chiarini, Bruno
  • Ferrara, Maria
  • Marzano, Elisabetta

Abstract

This paper investigates the consequences of willful tax noncompliance in the US corporate sector on the business cycle when financial frictions operate. In this setting, we simulate a risk shock that propagates its effects in the credit channel via a financial accelerator mechanism. In addition to emphasizing the role of tax evasion as a self-financing mechanism, the paper provides a twofold result, producing nonnegligible consequences for business cycle analysis. First, conditioned on risk shock, tax evasion strengthens the effects of the financial accelerator and amplifies macroeconomic fluctuations considerably. Second, endogenous tax evasion dynamics generates a reallocation of resources from productive to consumption uses over the business cycle.

Suggested Citation

  • Chiarini, Bruno & Ferrara, Maria & Marzano, Elisabetta, 2022. "Tax evasion and financial accelerator: A corporate sector analysis for the US business cycle," Economic Modelling, Elsevier, vol. 108(C).
    • Handle: RePEc:eee:ecmode:v:108:y:2022:i:c:s0264999322000268
    DOI: 10.1016/j.econmod.2022.105780
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    2. Lompo, Miaba Louise & Ouoba, Marie Madeleine, 2022. "How they hide money? An investigation on tax evasion of large corporations and wealthy taxpayers," MPRA Paper 113410, University Library of Munich, Germany.
    3. Lompo, Miaba Louise & Ouoba, Marie Madeleine, 2022. "How they hide money? An investigation on tax evasion of large corporations and wealthy taxpayers," MPRA Paper 114235, University Library of Munich, Germany.

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    More about this item

    Keywords

    Tax evasion; Financial accelerator; Corporate sector; Business cycle; DSGE Modeling;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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