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Dynamic tax evasion and growth with heterogeneous agents

Author

Listed:
  • Francesco Menoncin

    (University of Brescia)

  • Andrea Modena

    (University of Mannheim)

Abstract

We develop a tractable model economy in which public capital improves aggregate productivity, and the taxpayers have heterogeneous evasion opportunities. By issuing bonds, compliant taxpayers supply the evaders with an instrument to hedge against auditing risks, thereby expanding their evasion capacity. The wealth share of tax evaders relates negatively to the economy’s productivity but has a hump-shaped relationship with the growth rate of aggregate capital. The fiscal policy that maximizes welfare differs from the one that maximizes tax revenues because the latter does not account for the redistribution of wealth (and risk) between compliant and evasive taxpayers.

Suggested Citation

  • Francesco Menoncin & Andrea Modena, 2025. "Dynamic tax evasion and growth with heterogeneous agents," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 20(3), pages 643-658, July.
    • Handle: RePEc:spr:jeicoo:v:20:y:2025:i:3:d:10.1007_s11403-024-00434-y
    DOI: 10.1007/s11403-024-00434-y
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    More about this item

    Keywords

    Dynamic tax evasion; General equilibrium; Growth; Heterogeneous agents;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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