Macroeconomic effects of banking secrecy when tax evasion is endogenous
AbstractWe analyze a multi-country model in which a small group of countries adopts banking secrecy (BS) laws and a withholding tax. The other group doesn't. BS countries benefit in all relevant macroeconomic variables, including taxes and the provision of public goods. In non- BS countries most of the same variables deteriorate - when tax evasion is exogenous or its tax elasticity is moderate. When this elasticity is high, BS may drive these countries' tax rates down also, and income, consumption and wealth may rise. However, public-goods provision always deteriorates and welfare falls. We also argue that this case does not appear to be relevant empirically.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2006 with number 2006-10.
Length: 26 pages
Date of creation: May 2006
Date of revision:
Banking secrecy; tax evasion; withholding tax; welfare effects;
Find related papers by JEL classification:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-05-20 (All new papers)
- NEP-CBA-2006-05-20 (Central Banking)
- NEP-FMK-2006-05-20 (Financial Markets)
- NEP-MAC-2006-05-20 (Macroeconomics)
- NEP-PBE-2006-05-20 (Public Economics)
- NEP-REG-2006-05-20 (Regulation)
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