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Can tax evasion tame Leviathan governments?

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  • Manfred Gärtner

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  • Frode Brevik

    ()

Abstract

This paper looks at how income tax rates, consumption and public spending respond as venues for tax evasion open or close. The analysis draws on a 16-generation OLG model in which tax rates are determined in a repeated game between voters and a rent-seeking Leviathan government. Key insights are: (1) Effects on any generation alive when change takes place may differ substantially from steady state effects that accrue for generations yet to be born. (2) There is considerable intergenerational diversity in these effects that is not monotonous as we move from young to old. Combined, these results suggest that the political economy of pertinent institutional change may be quite complex.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2006/DP19_Ga.pdf
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Bibliographic Info

Paper 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 2006-19.

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Length: 32 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:usg:dp2006:2006-19

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Keywords: Leviathan government; income tax; tax evasion; public spending; rent seeking;

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  1. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  2. Persson, T. & Roland, G. & Tabellini, G., 1997. "Comparative Politics and Public Finance," Papers 633, Stockholm - International Economic Studies.
  3. Kollintzas, Tryphon & Philippopoulos, Apostolis & Vassilatos, Vanghelis, 2000. "Is Tax Policy Coordination Necessary?," CEPR Discussion Papers 2348, C.E.P.R. Discussion Papers.
  4. Bacchetta, P. & Paz Espinosa, M., 1992. "Information Sharing and Tax Competition Among Governments," UFAE and IAE Working Papers 173.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  5. Wolfgang Eggert & Martin Kolmar, 2004. "The Taxation of Financial Capital under Asymmetric Information and the Tax-competition Paradox," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 83-106, 03.
  6. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
  7. Harry Huizinga & Søren Bo Nielsen, . "Withholding Taxes or Information Exchange: The Taxation of International Interest Flows," EPRU Working Paper Series 00-19, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  8. Robin Boadway & Michael Keen, 1993. "Evasion and time consistency in the taxation of capital income," IFS Working Papers W93/20, Institute for Fiscal Studies.
  9. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
  10. Jan Schnellenbach, 2006. "Tax Morale and the Taming of Leviathan," Constitutional Political Economy, Springer, vol. 17(2), pages 117-132, 06.
  11. 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.
  12. Rogers, Carol Ann, 1987. "Expenditure taxes, income taxes, and time-inconsistency," Journal of Public Economics, Elsevier, vol. 32(2), pages 215-230, March.
  13. Philippe Bacchetta & María Espinosa, 2000. "Exchange-of-Information Clauses in International Tax Treaties," International Tax and Public Finance, Springer, vol. 7(3), pages 275-293, May.
  14. V.V. Chari & Patrick J. Kehoe & Edward C. Prescott, 1988. "Time consistency and policy," Staff Report 115, Federal Reserve Bank of Minneapolis.
  15. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
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