Marginal Cost of Public Funds under the Presence of Informality
Hacienda Publica Espanola, cilt.241, sa.2, ss.79-103, 2022 (SSCI, Scopus)
- Yayın Türü: Makale / Tam Makale
- Cilt numarası: 241 Sayı: 2
- Basım Tarihi: 2022
- Doi Numarası: 10.7866/hpe-rpe.22.2.4
- Dergi Adı: Hacienda Publica Espanola
- Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus, International Bibliography of Social Sciences, Periodicals Index Online, ABI/INFORM, Aranzadi Instituciones, EconLit, DIALNET
- Sayfa Sayıları: ss.79-103
- Anahtar Kelimeler: Dynamic general equilibrium model, Informal economy, Marginal cost of the public funds, Taxation
- Açık Arşiv Koleksiyonu: AVESİS Açık Erişim Koleksiyonu
- Boğaziçi Üniversitesi Adresli: Evet
Özet
In this paper, we investigate the behavior of the marginal cost of public funds (MCF) for different taxes under the presence of informality. We build a dynamic general equilibrium model with formal and informal sectors and allow the government to use consumption, capital, and labor income taxes to raise revenue. Using country-level data on taxes, we calibrate and measure MCF for a cross-section of economies. Our results show that different taxes have distinct cost responses to changes in the informal sector size in each country: while MCF of the consumption tax decreases with the increase in the informal sector size, the MCF of the income taxes, capital and labor, display an opposite behavior. Moreover, omitting the informal sector results in an underestimation in the MCF of capital income tax and overestimation in that of the consumption tax.