Tax Policy and Informality in the Brazilian Economy
Keywords:
shadow economy, dynamic general equilibrium, taxationAbstract
The COVID-19 pandemic highlighted the extent of informality in the Brazilian economy.
Factors such as unemployment, employment without formal contracts, and a high tax burden are widely documented in the literature as key determinants of this phenomenon.
However, the specific impacts of tax changes on informality remain underexplored. This study aims to analyze the effects of fiscal experiments on informality in Brazil using a dynamic general equilibrium model. The results show that increases in tax rates stimulate informality across various dimensions – consumption, production, and labor – leading to
negative consequences for tax revenue and exacerbating levels of tax evasion.
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