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Decomposing the Grey Economy in Bulgaria - A General-Equilibrium Analysis

Author

Listed:
  • Aleksandar Vasilev

    (Lincoln International Business School, UK)

Abstract
This paper attempts to assess the size of the grey economy, and provide a decomposition by evasion type. The modelling approach utilizes a standard micro-founded general-equilibrium setup, which is augmented with a revenue-extraction mechanism and a government sector. The model is calibrated to Bulgaria after the introduction of the currency board (1999-2018). A computational experiment performed within this setup estimates that on average, the size of total evasion is a bit more than one-fourth of output, an estimate which is in line with the figures provided in both Philip (2014) and the European Commission (2014). Two-thirds of the model-predicted evasion is a combined result of income- and social security evasion, while the rest is due to VAT evasion.

Suggested Citation

  • Aleksandar Vasilev, 2022. "Decomposing the Grey Economy in Bulgaria - A General-Equilibrium Analysis," Bulgarian Economic Papers bep-2022-06, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria // Center for Economic Theories and Policies at Sofia University St Kliment Ohridski, revised Aug 2022.
    • Handle: RePEc:sko:wpaper:bep-2022-06
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    References listed on IDEAS

    as
    1. de Melo, Jaime & Roland-Holst, David & Haddad, Mona, 1992. "Tax evasion and tax reform in a low income economy : general equilibrium estimates for Madagascar," Policy Research Working Paper Series 918, The World Bank.
    2. Konstantinos Angelopoulos & George Economides & Vanghelis Vassilatos, 2011. "Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 511-531, July.
    3. Di Nola Alessandro & Kocharkov Georgi & Vasilev Aleksandar, 2019. "Envelope wages, hidden production and labor productivity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(2), pages 1-30, June.
    4. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    5. Schneider,Friedrich & Enste,Dominik H., 2016. "The Shadow Economy," Cambridge Books, Cambridge University Press, number 9781316600894.
    6. Leandro Medina & Mr. Friedrich Schneider, 2018. "Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?," IMF Working Papers 2018/017, International Monetary Fund.
    7. Vasilev, Aleksandar, 2009. "Business cycles in Bulgaria and the Baltic countries: an RBC approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(2), pages 148-170.
    8. Colin Williams, 2008. "Envelope wages in Central and Eastern Europe and the EU," Post-Communist Economies, Taylor & Francis Journals, vol. 20(3), pages 363-376.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    tax evasion; general equilibrium; Bulgaria;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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