Tax evasion, financial development and inflation: theory and empirical evidence
AbstractUsing a standard overlapping generations monetary production economy, faced with endogenously determined tax evasion by heterogeneous agents in the economy, we provide a theoretical model that indicates that both a lower (higher) level of financial development and a higher (lower) level of in flation leads to a bigger (smaller) shadow economy. These findings are empirically tested within a panel econometric framework, using data collected for 150 countries over the period 1980-2009 to enable a broad generalisation of the results. The results support the developed theoretical model, even after having accounted for the differences in the levels of economic development, the level of institutional quality that includes different tax regimes and regulatory frameworks, central bank participation in the economy as well as different macroeconomic policies.
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Bibliographic InfoPaper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201316.
Length: 33 pages
Date of creation: Mar 2013
Date of revision:
Informal economy; financial development; in flation;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- E26 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
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- Pere Gomis-Porqueras & Adrian Peralta-Alva & Christopher J. Waller, 2011. "Quantifying the shadow economy: measurement with theory," Working Papers 2011-015, Federal Reserve Bank of St. Louis.
- Era Dabla-Norris & Andrew Feltenstein, 2005. "The underground economy and its macroeconomic consequences," Journal of Policy Reform, Taylor and Francis Journals, vol. 8(2), pages 153-174.
- Ulrich Thießen, 2010.
"The Shadow Economy in International Comparison: Options for Economic Policy Derived from an OECD Panel Analysis,"
Discussion Papers of DIW Berlin
1031, DIW Berlin, German Institute for Economic Research.
- Ulrich Thiessen, 2010. "The Shadow Economy in International Comparison: Options for Economic Policy Derived from an OECD Panel Analysis," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 481-509.
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