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Why People Tolerate Underground Economy and Tax Evasion?

Author

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  • Soldatos, Gerasimos T.

Abstract

An answer to this question is provided on the basis of a game-theoretic analysis connected methodologically with an intertemporal maximization model since a game played repeatedly over time, brings forward for consideration the present value of a sequence of payoffs. An optimal control problem arises for each individual, a problem that has to take into account the uncertainty stemming from the playing of mixed strategies. The result is that all of us cheat at least a little bit the state, and that we may not be sure that the state does not want us to do so: underground economy and/or tax evasion may be a necessary evil whenever they stabilize the economy and whenever they aid economic development.

Suggested Citation

  • Soldatos, Gerasimos T., 1995. "Why People Tolerate Underground Economy and Tax Evasion?," MPRA Paper 58545, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58545
    as

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    File URL: https://mpra.ub.uni-muenchen.de/58545/1/MPRA_paper_58545.pdf
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    References listed on IDEAS

    as
    1. Léonard,Daniel & Long,Ngo van, 1992. "Optimal Control Theory and Static Optimization in Economics," Cambridge Books, Cambridge University Press, number 9780521331586.
    2. Lemieux, Thomas & Fortin, Bernard & Frechette, Pierre, 1994. "The Effect of Taxes on Labor Supply in the Underground Economy," American Economic Review, American Economic Association, vol. 84(1), pages 231-254, March.
    3. Anand, Paul, 1995. "Foundations of Rational Choice Under Risk," OUP Catalogue, Oxford University Press, number 9780198774426.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Underground economy; Tax evasion; Mixed strategies;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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