Tax evasion, tax corruption and stochastic growth
AbstractThis paper presents a continuous time stochastic growth model to study the e¤ects of tax evasion and tax corruption on the level and volatil- ity of private investment and public spending. Our results suggest that there do exist several regimes of mean growth and growth volatility, de- pending upon the consumers degree of risk aversion, the tax income yield, the risk-adjusted return of the agents portfolio, the productivity of public spending. We nd that public spending is described asymptotically by an incomplete upper Gamma distribution, while private capital is described by a power law distribution. Depending upon the values of the parame- ters of these distributions, growth can be characterized by extreme values (high volatility) when the return to taxation lies under a certain threshold and/or when the risk-adjusted return of investing the proceeds of illegal activities evolves above a given threshold. We provide an empirical illus- tration of the model.
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Date of creation: 15 Feb 2013
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Stochastic growth; tax evasion; tax corruption;
Other versions of this item:
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- 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-ALL-2013-08-23 (All new papers)
- NEP-IUE-2013-08-23 (Informal & Underground Economics)
- NEP-ORE-2013-08-23 (Operations Research)
- NEP-PBE-2013-08-23 (Public Economics)
- NEP-PUB-2013-08-23 (Public Finance)
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