Tax Evasion and Growth: a Banking Approach

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Tax Evasion and Growth: a Banking Approach

Author Info

Max Gillman () (Cardiff University)
Michal Kejak () (The Center for Economic Research and Graduate Education of Charles University (CERGE EI))

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Abstract

The paper formalizes the relation between flat taxes and growth when there is a competitive equilibrium tax evasion. A decentralized tax evasion service is supplied by the banking sector. The bank production function follows the financial intermediation microfoundation approach, with deposits as an input. Across a class of endogenous growth models, tax evasion decreases the effective tax rate, and thereby lessens the negative effect of taxes on growth. And as the tax rate rises, tax evasion causes the growth rate to fall by less. Underlying the results is a fiscal principle whereby tax evasion creates, or magnifies, a rising demand price sensitivity to higher tax rates.

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Publisher Info
Paper provided by Institute of Economics, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0806.

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Length: 37 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:has:discpr:0806

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Find related papers by JEL classification:
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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

This paper has been announced in the following NEP Reports:

NEP-ACC-2008-07-05 (Accounting & Auditing)
NEP-ALL-2008-07-05 (All new papers)
NEP-BAN-2008-07-05 (Banking)
NEP-FDG-2008-07-05 (Financial Development & Growth)
NEP-MAC-2008-07-05 (Macroeconomics)
NEP-PBE-2008-07-05 (Public Economics)

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.:

Szilárd Benk & Max Gillman & Michal Kejak, 2008. "Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(6), pages 1281-1293, 09. [Downloadable!] (restricted)
Other versions:
- Szilárd Benk & Max Gillman & Michal Kejak, 2006. " Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks," CDMA Conference Paper Series 0604, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
- Szilárd Benk & Max Gillman & Michal Kejak, 2007. "Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks," MNB Working Papers 2007/5, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
- Benk, Szilárd & Gillman, Max & Kejak, Michal, 2007. "Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks," Cardiff Economics Working Papers E2007/14, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
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Other versions:
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Other versions:
- Max Gillman & Michal Kejak, 2004. "Inflation and Balanced-Path Growth with Alternative Payment Mechanisms," IEHAS Discussion Papers 0402, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
- Max Gillman & Michal Kejak, 2005. "Inflation and Balanced-Path Growth with Alternative Payment Mechanisms," Economic Journal, Royal Economic Society, vol. 115(500), pages 247-270, 01. [Downloadable!] (restricted)
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