Costly Tax Enforcement and Financial Repression
AbstractUsing an overlapping generations production-economy model characterized by financial repression, purposeful government expenditures and cost of tax collection, we analyse whether financial repression can be explained by the cost of raising taxes. We show that with public expenditures affecting utility of the agents, modest costs of tax collection tend to result in financial repression being pursued as an optimal policy by the consolidated government. However, when public expenditures are purposeless, the above result only holds for relatively higher costs of tax collection. But, more importantly, costs of tax collection cannot produce a monotonic increase in the reserve requirements. What are critical, in this regard, are the weights the consumer assigns to the public good in the utility function and the size of the government. Copyright 2008 The Authors Journal compilation 2008 Banca Monte dei Paschi di Siena SpA.
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Bibliographic InfoArticle provided by Banca Monte dei Paschi di Siena SpA in its journal Economic Notes.
Volume (Year): 37 (2008)
Issue (Month): 2 (07)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0391-5026
Other versions of this item:
- Rangan Gupta & Emmanuel Ziramba, 2008. "Costly Tax Enforcement and Financial Repression," Working Papers 200818, University of Pretoria, Department of Economics.
- Rangan Gupta & Emmanuel Ziramba, 2008. "Costly Tax Enforcement and Financial Repression," Working Papers 99, Economic Research Southern Africa.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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- Rangan Gupta & Cobus Vermeulen, 2010.
"Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting,"
201001, University of Pretoria, Department of Economics.
- Rangan Gupta & Cobus Vermeulen, 2010. "Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting," Annals of Economics and Finance, Society for AEF, vol. 11(1), pages 139-153, May.
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