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Tax Evasion and Dynamic Inefficiency

Author

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  • Emin Gahramanov

    (Deakin University)

Abstract

I show within a two-period overlapping generations model with income tax evasion that when the penalty rate set by the government is su¢ ciently small, it is theoretically possible for the capital stock to exceed the golden-rule level on the balanced-growth path. However, such a dynamic inefficiency cannot be guaranteed when the probability of evasion detection is nil.

Suggested Citation

  • Emin Gahramanov, 2009. "Tax Evasion and Dynamic Inefficiency," Economics Bulletin, AccessEcon, vol. 29(1), pages 437-443.
    • Handle: RePEc:ebl:ecbull:eb-08d90011
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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I1-P45.pdf
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    References listed on IDEAS

    as
    1. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
    2. María‐José Gutiérrez, 2008. "Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(4), pages 563-594, August.
    3. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(1), pages 1-19.
    4. Emmanuel Thibault & Bruno Decreuse, 2001. "Labor productivity and dynamic efficiency," Economics Bulletin, AccessEcon, vol. 4(13), pages 1-6.
    5. Rangan Gupta, 2005. "Endogenous Tax Evasion and Reserve Requirements: A Comparative Study in the Context of European Economies," Computing in Economics and Finance 2005 328, Society for Computational Economics.
    6. Alm, James & Bahl, Roy & Murray, Matthew N., 1993. "Audit selection and income tax underreporting in the tax compliance game," Journal of Development Economics, Elsevier, vol. 42(1), pages 1-33, October.
    7. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
    8. Partha Sengupta, 1998. "Tax evasion and intertemporal choice," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 26(4), pages 420-430, December.
    9. Been-Lon Chen, 2003. "Tax Evasion in a Model of Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 381-403, April.
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    Cited by:

    1. Chandler McClellan, 2019. "Growth Effects of VAT Evasion and Enforcement," Public Finance Review, , vol. 47(3), pages 530-557, May.
    2. Iswahyudi, Heru, 2018. "Economic Consequences of Tax Non-Compliance: Evidence From Indonesia," MPRA Paper 122337, University Library of Munich, Germany.
    3. Laopodis, Nikiforos T. & Merika, Anna A. & Triantafillou, Annie, 2016. "Unraveling the political budget cycle nexus in Greece," Research in International Business and Finance, Elsevier, vol. 36(C), pages 13-27.

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    More about this item

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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