This paper explores the effects of fiscal policy in an economy based on indirect taxes, and in the presence of VAT evasion channel. In addition, the government is taxing all income at the same rate. The focus of the paper to compare and contrast two regimes - the exogenous (observed) vs. optimal...

This paper explores the effects of fiscal policy in the presence of a VAT evasion channel, and then compares and contrasts two regimes - the exogenous vs. optimal policy case. To this end, a dynamic general-equilibrium model, calibrated to Bulgarian data (1999-2014), is augmented with a...