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Exploring tax evasion in the context of political uncertainty

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  • Katz, Barbara G.
  • Owen, Joel

Abstract

We present a model of agents facing the uncertainty of two future forms of government who are able to insure against this uncertainty by hiding funds from taxation. In order to choose whether or not to hide funds from taxation, agents need to know policy choices that each government would make should it come to power. But each government, before it could make its decision, would need to know the choices of the agents who would, for example, produce tax revenues. This informational tension is resolved endogenously. We derive the resulting level of tax evasion in society and the optimal choices made by the potential governments. We examine how changes in governmental structure would affect the level of tax evasion, and how that, in turn, would affect a particular form of capital flight.

Suggested Citation

  • Katz, Barbara G. & Owen, Joel, 2013. "Exploring tax evasion in the context of political uncertainty," Economic Systems, Elsevier, vol. 37(2), pages 141-154.
  • Handle: RePEc:eee:ecosys:v:37:y:2013:i:2:p:141-154
    DOI: 10.1016/j.ecosys.2012.12.005
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    References listed on IDEAS

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    Cited by:

    1. Leopoldo Fergusson & Carlos Molina & Juan Felipe Riaño, 2017. "I evade taxes, and so what? A new database and evidence from Colombia," DOCUMENTOS CEDE 015444, UNIVERSIDAD DE LOS ANDES-CEDE.

    More about this item

    Keywords

    Tax evasion; Political uncertainty; Economic uncertainty; Policy uncertainty; Economies in transition;

    JEL classification:

    • P37 - Economic Systems - - Socialist Institutions and Their Transitions - - - Legal
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy
    • P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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