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An OLG Model of Tax Evasion with Public Capital

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  • Manoj Atolia

    ()
    (Department of Economics, Florida State University)

Abstract

The paper presents a dynamic overlapping generations model of tax evasion where government revenue is used to provide public capital. It establishes existence and uniqueness of the competitive equilibrium and presents a detailed characterization of its dynamics. An increase in the probability of being caught, and the penal tax rate reduces tax evasion along the entire equilibrium path - a result that holds in the existing models in the literature across steady states. In the extended small open economy model with tariff on imported capital, distortions due to tax evasion wipe out the gains from the tariff reform.

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File URL: ftp://econpapers.fsu.edu/RePEc/fsu/wpaper/wp2003_04_01.pdf
File Function: First version, 2003-04
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Bibliographic Info

Paper provided by Department of Economics, Florida State University in its series Working Papers with number wp2003_04_01.

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Length: 33
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:fsu:wpaper:wp2003_04_01

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Related research

Keywords: Trade Reform; Welfare Analysis; Public Investment; Tax Evasion;

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References

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  1. Jonathan David Ostry & Carmen Reinhart, 1991. "Private Saving and Terms of Trade Shocks," IMF Working Papers 91/100, International Monetary Fund.
  2. 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.
  3. David Cass & Menahem E. Yaari, 1966. "A Re-examination of the Pure Consumption Loans Model," Journal of Political Economy, University of Chicago Press, vol. 74, pages 353.
  4. William Easterly & Sergio Rebelo, 1993. "Fiscal Policy and Economic Growth: An Empirical Investigation," NBER Working Papers 4499, National Bureau of Economic Research, Inc.
  5. Cross, Rodney & Shaw, G K, 1982. "On the Economics of Tax Aversion," Public Finance = Finances publiques, , vol. 37(1), pages 36-47.
  6. Lynde, Catherine & Richmond, J, 1993. "Public Capital and Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 401-14, May.
  7. Buffie,Edward F., 2001. "Trade Policy in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521004268, April.
  8. Reinhart, Carmen & Ogaki, Masao & Ostry, Jonathan, 1995. "Saving behavior in low- and middle-income developing countries," MPRA Paper 13757, University Library of Munich, Germany.
  9. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  10. Landskroner, Yoram & Paroush, J & Swary, Itzhak, 1990. "Tax Evasion and Portfolio Decisions," Public Finance = Finances publiques, , vol. 45(3), pages 409-22.
  11. Glomm, Gerhard & Ravikumar, B., 1999. "Competitive equilibrium and public investment plans," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1207-1224, August.
  12. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  13. 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.
  14. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, EconWPA.
  15. Steven N. Durlauf & Paul A. Johnson, 1992. "Local Versus Global Convergence Across National Economies," NBER Working Papers 3996, National Bureau of Economic Research, Inc.
  16. Srinivasan, T. N., 1973. "Tax evasion: A model," Journal of Public Economics, Elsevier, vol. 2(4), pages 339-346.
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Cited by:
  1. Bittencourt, Manoel & Gupta, Rangan & Stander, Lardo, 2014. "Tax evasion, financial development and inflation: Theory and empirical evidence," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 194-208.
  2. Gupta, Rangan, 2008. "Tax evasion and financial repression," Journal of Economics and Business, Elsevier, vol. 60(6), pages 517-535.

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