Italian economy that, among European countries, is the second for high public debt and has one of the highest size of tax … evasion. Results show that it is possible to both reduce public debt and tax evasion through a temporary cut in public … spending associated with a permanent drop in tax rates. In this context a reallocation of resources from the underground to …

This paper contributes to the GDP-consumption comovement puzzle literature investigating the role of tax evasion in … Keynesian DSGE model combining tax evasion with financial frictions à la Bernanke, Gertler, Gilchrist (1999). The main result of … our paper shows that tax evasion can considerably shrink the GDP-consumption comovement puzzle area. …