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On the Relation between Tax Rates and Evasion in a Multi-period Economy

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Author Info
Jordi Caball?Author-Email: Jordi.Caballe@uab.es
Judith Panad?

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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. In this context we show that the sign of the relation between the level of the tax rate and the amount of evaded income is the same as that obtained in static setups. Moreover, high tax rates on income are typically associated with low growth rates as occurs in standard growth models that disregard the tax evasion phenomenon.

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Publisher Info
Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 500.01.

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Length: 12
Date of creation: 23 Oct 2001
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Handle: RePEc:aub:autbar:500.01

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Related research
Keywords: Tax Evasion; Growth;

Find related papers by JEL classification:
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
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  2. James M. Poterba, 1987. "Tax Evasion and Capital Gains Taxation," NBER Working Papers 2119, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Lin, Wen-Zhung & Yang, C. C., 2001. "A dynamic portfolio choice model of tax evasion: Comparative statics of tax rates and its implication for economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 25(11), pages 1827-1840, November. [Downloadable!] (restricted)
  4. Lee, Kangoh, 2001. "Tax evasion and self-insurance," Journal of Public Economics, Elsevier, vol. 81(1), pages 73-81, July. [Downloadable!] (restricted)
  5. Landskroner, Yoram & Paroush, J & Swary, Itzhak, 1990. "Tax Evasion and Portfolio Decisions," Public Finance = Finances publiques, , vol. 45(3), pages 409-22.
  6. Yaniv, Gideon, 1994. "Tax Evasion and the Income Tax Rate: A Theoretical Reexamination," Public Finance = Finances publiques, , vol. 49(1), pages 107-12.
  7. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June. [Downloadable!] (restricted)
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  8. Hakansson, Nils H, 1970. "Optimal Investment and Consumption Strategies Under Risk for a Class of Utility Functions," Econometrica, Econometric Society, vol. 38(5), pages 587-607, September. [Downloadable!] (restricted)
  9. Crane, Steven E & Nourzad, Farrokh, 1986. "Inflation and Tax Evasion: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 217-23, May. [Downloadable!] (restricted)
  10. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dzhumashev, Ratbek & Gahramanov, Emin, 2008. "Can We Tax the Desire for Tax Evasion?," MPRA Paper 11960, University Library of Munich, Germany. [Downloadable!]
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