A Real-Business-Cycle model with an informal sector: Lessons for Bulgaria (1999-2018)

Abstract

We introduce an informal sector into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of a grey economy for the cyclical fluctuations in Bulgaria. We find that incorporating an informal sector improves the model fit against data, as compared to the standard RBC model, and thus this sector is an important ingredient that needs to be considered by researchers interested in business cycle-, or public finance issues.

References

[1] Baxter, Marianne and Robert King. 1993. “Fiscal policy in general equilibrium,” American Economic Review 83: 315-334.
[2] Bulgarian National Bank. 2020. Bulgarian National Bank Statistics. Available on-line at www.bnb.bg. Accessed on Jan 29, 2020.
[3] Canova, Fabio. 2007. Methods for Applied Macroeconomic Research. Princeton University Press: Princeton, NJ.
[4] Cogley, Timothy and James Nason. 1995. “Output dynamics in Real-Business Cycles,” American Economic Review 85(3): 492-511.
[5] Hodrick, Robert and Edward Prescott. 1980. “Post-war US business cycles: An empirical investigation.” Unpublished manuscript (Carnegie-Mellon University, Pittsburgh, PA).
[6] National Statistical Institute. 2020. Aggregate Statistical Indicators. Available on-line at www.nsi.bg. Accessed on Jan. 29, 2020.
[7] Rotemberg, Julio and Michael Woodford. 1996b. “Real-Business-Cycle Models and the Forecastable Movements in Output, Hours, and Consumption,” American Economic Review, 86: 71-89.
[8] Schneider, F. and Dominik H. Enste (2013) The Shadow Economy: An International Survey, Cambridge University Press: Cambridge, UK.
[9] Vasilev, A. (2017a) “Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014), European Journal of Comparative Economics, 14(2): 197-219.
[10] Vasilev, A. (2017b) “A Real-Business-Cycle model with efficiency wages and a government sector: the case of Bulgaria,” Central European Journal of Economics and Econometrics, 9(4): 359-377.
[11] Vasilev, A. (2017c) “A Real-Business-Cycle model with reciprocity in labor relations and fiscal policy: the case of Bulgaria,” Bulgarian Economic Papers BEP 03-2017, Center for Economic Theories and Policies, Sofia University St. Kliment Ohridski, Faculty of Economics and Business Administration, Sofia, Bulgaria.
[12] Vasilev, A. (2017d) “VAT Evasion in Bulgaria: A General-Equilibrium Approach,” Review of Economics and Institutions, 8(2): 2-17.
[13] Vasilev, A. (2017e). “Progressive taxation and (in)stability in an exogenous growth model with an informal sector,” Journal of Economics and Econometrics 60(2): 1-13.
[14] Vasilev, A. (2016a). “Progressive taxation and (in)stability in an endogenous growth model with human capital accumulation,” Journal of Economics and Econometrics 59(2): 1-15.
[15] Vasilev, A. (2016b) “Search and matching frictions and business cycle fluctuations in Bulgaria,” Bulgarian Economic Papers BEP 03-2016, Center for Economic Theories and Policies, Sofia University St. Kliment Ohridski, Faculty of Economics and Business Administration, Sofia, Bulgaria.
[16] Vasilev, A. (2015a) “Welfare effects of flat income tax reform: the case of Bulgaria,” Eastern European Economics 53(2): 205-220.
[17] Vasilev, A. (2015b) “Welfare gains from the adoption of proportional taxation in a general-equilibrium model with a grey economy: the case of Bulgaria’s 2008 flat tax reform,” Economic Change and Restructuring, 48(2): 169-185.
[18] Vasilev, A. (2009) “Business cycles in Bulgaria and the Baltic countries: an RBC approach,” International Journal of Computational Economics and Econometrics, 1(2): 148-170.
Published
2024-06-30
How to Cite
VASILEV, Aleksandar. A Real-Business-Cycle model with an informal sector: Lessons for Bulgaria (1999-2018). Journal of Mathematical Economics and Finance, [S.l.], v. 10, n. 1, p. 49 - 63, june 2024. ISSN 2458-0813. Available at: <https://journals.aserspublishing.eu/jmef/article/view/8571>. Date accessed: 13 oct. 2024. doi: https://doi.org/10.14505/jmef.v10.1(18).03.