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Tax Rates, Tax Evasion, and Growth in a Multi-period Economy

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Author Info

  • Jordi Caballé

    (Unitat de Fonaments de l’Anàlisi Econòmica and CODE, Universitat Autònoma de Barcelona)

  • Judith Panadés

    (Unitat de Fonaments de l’Anàlisi Econòmica and CODE, Universitat Autònoma de Barcelona)

Abstract

We extend the basic tax evasion model to a multi-period economy exhibiting sustained growth. When individuals conceal part of their true income from the tax authority, they face the risk of being audited and hence of paying the corresponding fine. Both taxes and fines determine individual saving and the rate of capital accumulation. We show that, if the penalty imposed on tax evaders is proportional to the amount of evaded taxes, then the growth rate is decreasing in the tax rate. However, the relationship between growth and tax rate becomes non-monotonic when the penalty rate is imposed on the amount of evaded income.

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Bibliographic Info

Article provided by IEF in its journal Hacienda Pública Española/Revista de Economía Pública.

Volume (Year): 183 (2007)
Issue (Month): 4 (december)
Pages: 67-80

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Handle: RePEc:hpe:journl:y:2007:v:183:i:4:p:67-80

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Related research

Keywords: Tax evasion; Growth;

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References

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  1. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
  2. Panades, Judith, 2001. "Tax evasion and Ricardian equivalence," European Journal of Political Economy, Elsevier, vol. 17(4), pages 799-815, November.
  3. Landskroner, Yoram & Paroush, J & Swary, Itzhak, 1990. "Tax Evasion and Portfolio Decisions," Public Finance = Finances publiques, , vol. 45(3), pages 409-22.
  4. James M. Poterba, 1987. "Tax Evasion and Capital Gains Taxation," Working papers 436, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Judith Panadés, 2004. "Tax Evasion and Relative Tax Contribution," Public Finance Review, , vol. 32(2), pages 183-195, March.
  6. Jordi Caballe & Judith Panadés, 2004. "Cost Uncertainty and Taxpayer Compliance," Working Papers 127, Barcelona Graduate School of Economics.
  7. Been-Lon Chen, 2003. "Tax Evasion in a Model of Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 381-403, April.
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Cited by:
  1. Cerqueti, Roy & Coppier, Raffaella, 2011. "Economic growth, corruption and tax evasion," Economic Modelling, Elsevier, vol. 28(1-2), pages 489-500, January.
  2. Ratbek Dzhumashev & Emin Gahramanov, 2009. "A Stochastic Growth Model with Income Tax Evasion: Implications for Australia," Economics Series 2009_05, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.

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