Published Papers
Tax Evasion, Fiscal Policy and Public Debt: Evidence from Spain
Moises Meroño and Francesco Turino
Economic Systems 2023
We reconsider the macroeconomic effects of fiscal policy in an estimated dynamic stochastic general equilibrium model with limited tax enforcement. The results of the Bayesian estimation provide evidence in favor of a sizeable underground sector in Spain, with the associated tax evasion that has contributed, on average, to a 23% of public debt accumulation over the 1985-2015 period. From the stand point of fiscal policy, the estimated results show that the presence of tax evasion triggers a resource-reallocation mechanism that dampens the effects upon economic activity caused by an increase in government spending, while amplifies those due to changes in tax rates. Because of this mechanism, we show that tax-based consolidation plans may become completely ineffective in reducing the debt-to-GDP ratio if tax enforceability is imperfect. Moreover, by characterizing the long-run Laffer curve, we show that the actual taxation in Spain is inefficiently too high, in the sense that the government might increase tax revenues by cutting the actual tax rates on both corporate and personal income.
Financial Frictions and Firm Informality: A General Equilibrium Assessment
Luis Franjo, Nathalie Pouokam and Francesco Turino
Economic Journal-2022
This paper assesses the extent to which financial development and informality are related, and how this relation translates into differences in GDP and TFP across countries. To this end, we develop a quantitative life-cycle general equilibrium model of occupational choice with imperfect tax enforcement in which informal entrepreneurs have no access to credit and face an endogenous probability of detection. Our quantitative analysis shows that the degree of financial frictions of a country is crucial in shaping the firm's incentives to evade taxation, a feature that, in the aggregate, results into a non-linear relationship between financial development and both size of informality and GDP per capita. We test these model's predictions with cross-country data and find supporting evidence in favour of both non-linearities.
Benedetto Molinari and Francesco Turino
Economic Journal -2018
Aggregate data reveal that in the US, advertising absorbs 2% of GDP. Because the purpose of brand advertising is to foster sales, we ask whether such spending appreciably affects aggregate consumption and economic activity. This question is addressed by developing and estimating a dynamic general equilibrium model in which households’ preferences for differentiated goods depend on brand advertising. Estimated results for the US economy indicate that in the long‐run, the presence of advertising raises aggregate consumption, investment, and hours worked, eventually fostering overall economic activity. We also find that advertising has a relevant impact on fluctuations in consumption and investment.
Climent Quintana Domeque and Francesco Turino
The BE Journal of Theoretical Economics - 2016
Do relative concerns on visible consumption give rise to economic distortions? We re-examine the question posited by Arrow and Dasgupta (2009) building upon their general framework but recognizing that relative concerns can only apply to visible goods (e.g., cars, clothing, jewelry) and that households consume both visible and non-visible goods. Contrary to Arrow and Dasgupta (2009), the answer to this question turns to be always affirmative: the competitive equilibrium will always be different than the socially optimal one, since individuals do not take into account the negative externality they exert on others through the consumption of the visible good, while the social planner does. If one invokes separability assumptions, then the steady state competitive equilibrium consumption of non-visible goods will be strictly lower than the socially optimal one.
Two-Tier Labour Market Reform: A Quantitative General Equilibrium Assessment
Claudio Campanale and Francesco Turino
Applied Economic Letters - 2016
In the 1990s several European countries liberalized the use of fixed-term labour contracts in an effort to reduce persistently low employment growth. This article studies the effect of these reforms through the lens of a version of the Hopenhayn and Rogerson (1993) model calibrated on Italian data. We find no effect of the reform on total employment in steady state.
Size, Trend, and Policy Implications of the Underground Economy
Renzo Orsi, Davide Raggi, and Francesco Turino
Review of Economics Dynamics - 2014
We study the underground economy within a dynamic and stochastic general equilibrium framework. Our model combines limited tax enforcement with an otherwise standard two-sector neoclassical stochastic growth model. The Bayesian estimation of the model based on Italian data provides evidence in favor of an important underground sector in Italy, with a size that has increased steadily over the whole sample period. We show that this pattern is due to a steady increase in taxation. Fiscal policy experiments suggest that a moderate tax cut, along with a stronger effort in the monitoring process, causes a sizeable reduction in the size of the underground economy and provides a positive stimulus for the regular economy. Both of these effects jointly increase total fiscal revenues.
Renzo Orsi and Francesco Turino
Empirical Economics - 2014
In this paper, we investigate possible sources of declining economic growth in Italy beginning near the middle of the 1990s. A long-term data analysis suggests that the poor performance of the Italian economy cannot be blamed on an unfortunate business cycle contingency. Other countries of the euro area have shown better performance, and the macroeconomic data indicate that the Italian economy has not grown at the same rate as these other European economies. We investigate the sources of economic fluctuations in Italy by applying the business cycle accounting procedure introduced by Chari et al. (2007). We analyze the relative importance of efficiency, labor, investment and government wedges for business cycles in Italy during the 1982–2008 period. We find that individual wedges have played different roles during this period; however, the efficiency wedge is shown to be the factor most responsible for the stagnation phase that began in approximately 1995. Our findings also show that the decline in labor market distortions that occurred in Italy during the 1990s alleviated the stagnation effect somewhat and prevented an even more abrupt slowdown in per capita output growth.
Multi-Product Firms and Business Cycle Dynamics
Antonio Minniti and Francesco Turino
European Economic Review - 2013
Recent empirical evidence provided by Bernard et al. (2010) and Broda and Weinstein (2010) shows that a significant share of product creation and destruction in U.S. industries occurs within existing firms and accounts for an important share of aggregate output. In the present paper, and consistent with this evidence, we relax the standard assumption of mono-product firms in a dynamic stochastic general equilibrium model. Our analysis is based on a model of firm dynamics with two deviations from the conventional real business cycle framework—imperfect competition with endogenous entry and multi-product firms. The combination of these two features enables our model to successfully generate a mechanism that accounts for the strong procyclicality of product creation. Due to the proliferation effect induced by firm-level adjustments in product scope, we show that our model embodies a quantitatively important magnification mechanism of aggregate shocks.
Francesco Turino
The BE Journal of Macroeconomics - 2010
This paper studies the implications for inflation dynamics of introducing non-price competition into a New Keynesian model featuring both nominal rigidities, which are in the form of staggered prices, and real rigidities, which are in the form of strategic complementarities in price setting. Under very general assumptions, we show that the presence of non-price competition among firms dampens the overall degree of real rigidities in the economy, thereby increasing the sensitivity of inflation to movements in real marginal costs. Because of this property, our analysis provides additional insights to the existing theories on real rigidities, showing that the strong linkage between real rigidities and the sensitivity of inflation to real marginal costs that has been found in previous works is not robust across alternative assumptions about inter-firms competition.
Working Papers and Works in Progress
Advertising, Promotional Marketing and the Aggregate Economy: Evidence from France (submitted)
Samuel Delpeuch and Francesco Turino
In 2019, 34 billions euros (1.4% of GDP) were spent in France on advertisement and promotional marketing. In order to assess the aggregate implications of commercial communication, we build a DGSE model in which heterogeneous households feature endogenous preferences over differentiated goods and firms strategically advertise and promote their products. The results of the Bayesian estimation provide evidence in favor of a market-size effect of commercial communication in France, with marketing activities by firms that exert a quantitatively important stimulus for the economic activity both in the short- and in the long-run. These effects are driven by a work and spend mechanism, according to which exposure to brand marketing makes individuals willing to work more in order to consume more. Counterfactual scenarios show that taxes on commercial communication can be welfare improving as it alleviates this consumerist gear.
Entrepreneurial Human Capital and Firm Informality
Adilya Abdrazakova, Luis Franjo, and Francesco Turino
This paper assesses the extent of the relationship between entrepreneurial investments in human capital and firm informality, and its interaction with the degree of financial frictions of a country. To this end, we developed a quantitative life-cycle general equilibrium model of entrepreneurship with credit market imperfections, limited tax enforcement and educational choice. Our quantitative analysis suggests that factors facilitating higher educational attainments of entrepreneurs enhance firm formalization through availability of skilled labor and higher firm productivity. The magnitude of the effect crucially depends upon the degree of credit market imperfections of the economy.
Taxation, Underground Economy, and Economic Performance (submitted)
K K C Sineth Kannangara, Francesco Turino, Yanrui Wu
We develop a dynamic stochastic general equilibrium model with limited tax enforcement, and estimate it for the Sri Lankan economy by means of Bayesian techniques. Our objective is twofold: estimating the size and trend of the underground economy and investigating possible reforms to the income tax policy of the country. According to our findings, the underground economy in Sri Lanka accounts for an average of 42 per cent of GDP and has been on a growing trajectory since 2012. Tax policy experiments suggest that policy reforms aimed at fighting against tax evasion are more effective alternatives for stimulating fiscal revenue generation than merely imposing higher income tax rates. The proposed policy adjustments not only hold the potential to pave the pathway to foster compliance but also to contribute to augmenting overall economic performance in Sri Lanka