Hidden Economies and the Socially Optimal Fiscal-Tax to Liquidity-Tax Ratio

Ercolani, Marco

doi:10.2139/ssrn.1716349

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Hidden Economies and the Socially Optimal Fiscal-Tax to Liquidity-Tax Ratio

Economics Discussion Paper No. 2007-10

33 Pages Posted: 29 Nov 2010

See all articles by Marco Ercolani

Marco Ercolani

University of Birmingham - Department of Economics

There are 3 versions of this paper

Date Written: 2007

Abstract

Differential tax analysis is used to show how the socially optimal fiscal-tax to liquidity-tax ratio changes with the relative size of the tax-evading hidden economy. The smaller the relative size of the hidden economy, the larger the optimal fiscal-tax to liquidity-tax ratio. The empirical cross-section and panel evidence supports this theoretical result.

Keywords: inflation tax, hidden/shadow/underground economy, seigniorage

JEL Classification: H21, E52, O17, E31

Suggested Citation: Suggested Citation

Ercolani, Marco, Hidden Economies and the Socially Optimal Fiscal-Tax to Liquidity-Tax Ratio (2007). Economics Discussion Paper No. 2007-10, Available at SSRN: https://ssrn.com/abstract=1716349 or http://dx.doi.org/10.2139/ssrn.1716349