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Tax evasion, tax corruption and stochastic growth

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  • Célimène, Fred
  • Dufrénot, Gilles
  • Mophou, Gisèle
  • N'Guérékata, Gaston

Abstract

This paper presents a continuous time stochastic growth model to study the effects of tax evasion and tax corruption on the level and volatility of private investment and public spending that are both factors of growth. The model highlights several channels through which the mean and volatility of these variables are affected. We first stress the role of equity markets, showing that the evasion outcome for the private sector is not necessarily viewed as a burden. Equity market performs here have the same role as a policy of tax exemption. In societies in which the share of private investment in percentage of GDP is growing, in which tax cheaters usually choose to shelter the proceeds of their illegal activities from the official financial institutions, and in which the productivity of public spending is often low, tax evasion and tax corruption may contribute to the development of private capital if people find an opportunity to invest the proceeds of their illegal activities in equity markets.

Suggested Citation

  • Célimène, Fred & Dufrénot, Gilles & Mophou, Gisèle & N'Guérékata, Gaston, 2016. "Tax evasion, tax corruption and stochastic growth," Economic Modelling, Elsevier, vol. 52(PA), pages 251-258.
    • Handle: RePEc:eee:ecmode:v:52:y:2016:i:pa:p:251-258
    DOI: 10.1016/j.econmod.2014.10.055
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    Cited by:

    1. Tarverdi, Yashar & Saha, Shrabani & Campbell, Neil, 2019. "Governance, democracy and development," Economic Analysis and Policy, Elsevier, vol. 63(C), pages 220-233.
    2. repec:spr:annopr:v:261:y:2018:i:1:d:10.1007_s10479-017-2618-9 is not listed on IDEAS
    3. Bayramov, Vugar & Abbas, Gulnara, 2017. "Oil shock in the Caspian Basin: Diversification policy and subsidized economies," Resources Policy, Elsevier, vol. 54(C), pages 149-156.

    More about this item

    Keywords

    Stochastic growth; Tax evasion; Tax corruption;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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