This paper presents a continuous time stochastic growth model to study the effects of tax evasion and tax corruption on the level and volatility of private investment and public spending that are both factors of growth. The model highlights several channels through which the mean and volatility of these variables are affected. We first stress the role of equity markets, showing that the evasion outcome for the private sector is not necessarily viewed as a burden. Equity market performs here have the same role as a policy of tax exemption. In societies in which the share of private investment in percentage of GDP is growing, in which tax cheaters usually choose to shelter the proceeds of their illegal activities from the official financial institutions, and in which the productivity of public spending is often low, tax evasion and tax corruption may contribute to the development of private capital if people find an opportunity to invest the proceeds of their illegal activities in equity markets.

The paper examines the monetary policy actions through which central banks in sub-Saharan Africa have tried to eliminate the negative impacts of the shocks facing their economies. We compare two different monetary policy regimes: a currency board regime (in the CFA zone) and an inflation targeting policy regime (Ghana and South Africa) when central banks respond to demand, supply, and fiscal shocks. We extend the usual forecasting and policy analysis system models to replicate the economic features of these economies during the period 2002–12 and to evaluate the impact of several policies in response to these shocks. We find that both policies are inappropriate in helping the economies escape from the effects of negative demand shocks, both are essential when negative shocks to primary balance occur, while inflation targeting dominates the currency board regime as a strategy to cope with positive shocks to inflation.

This paper uses a quantile regression analysis to investigate differences across the ECOWAS countries of the engine of growth. Specifically, we want to see whether differences in the growth rates are related to domestic factors of economic growth (investment, human capital and financial intermediation), policy variables (inflation and government consumption) and institutional factors (degree of bureaucracy, accountability, corruption and property rights). Our empirical investigation provides evidence of heterogeneity in the determinants of economic growth depending upon the location of countries in the conditional distribution of per-capita GDP growth. We find that in the upper tails of the distribution, governance and institutional variables are more crucial in impacting growth than the standard determinants of growth in the neoclassical growth models. Conversely, for the lower tails of growth distribution, the economic growth seems to depend more heavily on the accumulation of physical capital and on education.

We test for non-linear effects of asset prices on the fiscal policy of four major European economies (France, Italy, Spain and UK). We model government spending and revenue as time-varying transition probability Markovian processes (TVPMS), and find that: (i) in France and Italy, the impact of housing prices on government revenue is conditioned by the phase of the stock price cycle; (ii) a similar asymmetric pattern is found for the UK when considering the effect of stock price fluctuations on government revenue and spending vis-à-vis the troughs and peaks of aggregate wealth; and (iii) for Spain, a fall in government revenue is typically associated with a negative performance of the housing market, while government spending does not seem to adjust to the dynamics of financial market. In addition, the magnitude of the contribution of housing prices to changes in government revenue appears to have dominated that of stock prices in France and the UK. As for government spending, changes in this policy instrument are correlated with changes in asset prices, but the effect depends on the magnitude of the price variation and the influence of the output cycle. Therefore, the empirical evidence corroborates the idea that accounting for the dynamics of asset markets provides a more accurate assessment of the fiscal stance.