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Dynamic Tax Evasion and Growth With Heterogeneous Agents

Author

Listed:
  • Francesco Menoncin
  • Andrea Modena

Abstract

We develop a tractable model of a production economy in which public capital improves aggregate productivity and the taxpayers have heterogeneous evasion opportunities. We show that, by issuing bonds, compliant taxpayers supply the evaders with an instrument to hedge against auditing risks, thereby expanding their evasion capacity. Moreover, we demonstrate that a higher share of tax evaders reduces the economy’s total factor productivity but has a hump-shaped relationship with the growth rate of aggregate capital.

Suggested Citation

  • Francesco Menoncin & Andrea Modena, 2023. "Dynamic Tax Evasion and Growth With Heterogeneous Agents," CRC TR 224 Discussion Paper Series crctr224_2023_393, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2023_393
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp393
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    More about this item

    Keywords

    Dynamic tax evasion; general equilibrium; growth; heterogeneous agents;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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