Tax Evasion, Technology Shocks and the Cyclicality of Government Revenues
AbstractThis working paper analyzes the behavior of tax revenue (the ratio of tax revenue to gross domestic product [GDP]) throughout the business cycle. In order to replicate empirical evidence, we develop a simple model combining the standard Ak growth model with the tax evasion phenomenon. 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. In this setup, the effect of a positive technological shock on the government revenue to output ratio is fully characterized by the value of intertemporal elasticity of substitution (IES). In particular, under the empirically plausible assumption that the IES exhibits a sufficiently small value, we show that the elasticity of government revenue with respect to output is larger than one, which agrees with the empirical evidence
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Bibliographic InfoPaper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 201055.
Date of creation: Jun 2009
Date of revision:
Tax evasion; technology shocks; growth.;
Other versions of this item:
- Jordi Caballé & Judith Panadés, 2011. "Tax Evasion, Technology Shocks, and the Cyclicality of Government Revenues," UFAE and IAE Working Papers 870.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Jordi Caballé & Judith Panadés, 2011. "Tax Evasion, Technology Shocks, and the Cyclicality of Government Revenues," Working Papers 546, Barcelona Graduate School of Economics.
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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.:
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