Description
Title: The existence and persistence of the underground economy: can the AD-AS model explain it? proof from Italy
Abstract: Both in developed and developing nations, the underground economy has a significant impact on employment and economic growth. However, the Aggregate Demand-Aggregate Supply (or simply AD-AS) model, the foundational tool for macroeconomic analysis, does not take into account this pervasive phenomenon. In order to improve the descriptive power of the popular AD-AS model, this paper, to the best of our knowledge, incorporates the underground economy into the model for the first time. The underground economy can, in fact, cause a supply-side positive shock that reduces the issue of high unemployment, at least in the short run, despite its negative effects on aggregate demand and growth, according to the current theoretical extension of the AD-AS model. Additionally, empirical data from Italy is offered.
Keywords: general aggregative models; informal economy; underground economy
Paper Quality: SCOPUS / Web of Science Level Research Paper
Subject: Economics
Writer Experience: 20+ Years
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