Fiscal Policy and Informal Economy over the Business Cycle

Ceyhun Elgin received one of the Marie Curie Action:"Reintegration Grants" (FP7-PEOPLE-2009-RG) and will be hosted by the Bogazici University Department of Economics and Center for Economics and Econometrics to conduct his research during the grant period.

The project aims to understand whether and how informal sector affects behaviour of fiscal policy over the business cycle and then develop an economic model using the state of the art techniques of dynamic macroeconomics that incorporates fiscal policy and informal economy. This model will be used to analyze various effects of the presence of an informal sector in European countries, specifically how it affects the cyclicality of fiscal policy and thereby economic growth and aggregate productivity over the business cycle.

This project is original and innovative in two major dimensions:(1) methodologically, it will advance the literature on cyclicality of fiscal policy and informal economy (2) the developed model will be used to analyze important policy issues for Europe that are not discussed at length previously.