%0 Journal Article
%A Costa Junior, Celso J.
%A García-Cintado, Alejandro
%A Usabiaga Ibáñez, Carlos
%T Fiscal Adjustments and the Shadow Economy in an Emerging Market
%D 2021
%U https://hdl.handle.net/10433/19882
%X We build an open-economy dynamic stochastic general equilibrium (DSGE) model that allows us to: (i) derive a time series for labor informality in Brazil spanning the period2004–2018, whose evolution is consistent with the behavior of the main series provided  by Pesquisa Nacional por Amostra de Domicílios (PNAD); (ii) run dynamic simulationsshowing that, in the presence of a large informal labor market (around 50% of the total labor force), expenditure-cutting measures lead, at worst, to mild short-run recessions inthe formal sector and are likely to foster public debt sustainability. Likewise, adjustments through some kinds of distortionary taxation, mainly the corporate tax, and to a lesserextent, the consumption tax, also seem to improve both public debt dynamics and fiscal collection without a significant cost in terms of output. Thus, in countries with largeinformal economies experiencing fiscal woes, expenditure-based consolidations, as well as some sorts of tax-based adjustments, should be relied upon.
%K DSGE Models
%K Shadow Economy
%K Fiscal Policy
%K Emerging Economies
%~