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Tax evasion and financial repression

  • Gupta, Rangan

Using a simple overlapping generations framework, calibrated to four Southern European countries, we analyze the relationship between tax evasion, determined endogenously, and financial repression. We show that higher degree of tax evasion within a country, resulting from a higher level of corruption and a lower penalty rate, yields higher degrees of financial repression as a social optimum. However, a higher degree of tax evasion, due to a lower tax rate, reduces the severity of the financial restriction.

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Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 60 (2008)
Issue (Month): 6 ()
Pages: 517-535

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Handle: RePEc:eee:jebusi:v:60:y:2008:i:6:p:517-535
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconbus

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