Estimating the Laffer Curve for Slovakia: A DSGE Approach
| Authors | |
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| Year of publication | 2019 |
| Type | Article in Proceedings |
| Conference | Proceedings of 37th International Conference on Mathematical Methods in Economics |
| MU Faculty or unit | |
| Citation | |
| Web | Conference proceedings |
| Keywords | underground economy; DSGE model; tax system; Laffer curve; Slovakia |
| Description | The goal of this paper is to quantify the impact of alternative tax adjustments on government tax revenues and the size of the shadow economy in Slovakia. Our approach uses a small dynamic stochastic general equilibrium (DSGE) model consisting of both formal and informal sectors of the economy. Using the quarterly data for the Slovak economy from 2000 to 2017 we estimate a linearised form of the DSGE model. Based on our parameter estimates, we perform a set of simulations using the non-linear form of the underlying DSGE model to evaluate the effects of changes in the corporate tax rate, personal income tax rate, social security tax rate, and in the probability of tax control. These effects are evaluated with regards to the changes in steady-state values of the output in the official economy, total tax revenues, and the size of the shadow economy. The corresponding Laffer curves show strong responses in the size of the underground economy when the corporate tax rates or personal income tax rates are growing. On the other hand, the increase of the social security tax rates causes only small growth in the share of the shadow economy without negative effects on government tax revenues. |
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