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Tax evasion,tax corruption and stochastic growth

  • Fred Celimene

    ()

    (CEREGMIA, Université des Antilles et de la Guyane)

  • Gilles Dufrenot

    ()

    (Aix-Marseille Université)

  • Gisele Mophou

    ()

    (CEREGMIA, Université des Antilles et de la Guyane)

  • Gaston N'Guerekata

    (Morgan State University, Baltimore, MD, USA)

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. Our results suggest that there do exist several regimes of mean growth and growth volatility, depending upon the consumer's degree of risk aversion, the tax income yield, the risk-adjusted return of the agent's portfolio, the productivity of public spending. We find that public spending is described asymptotically by an incomplete upper Gamma distribution, while private capital is described by a power law distribution. Depending upon the values of the parameters of these distributions, growth can be characterized by extreme values (high volatility) when the return to taxation lies under a certain threshold and/or when the risk-adjusted return of investing the proceeds of illegal activities evolves above a given threshold. We provide an empirical illustration of the model.

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File URL: http://www2.univ-ag.fr/RePEc/DT/DT2013-05_Celimene_al.pdf
File Function: First version, 2013
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Paper provided by CEREGMIA, Université des Antilles et de la Guyane in its series Documents de Travail with number 2013-05.

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Length: 38 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:crg:wpaper:dt2013-05
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  1. 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.
  2. Jean Hindriks, Michael Keen and Abhinay Muthoo, . "Corruption, Extortion and Evasion," Economics Discussion Papers 470, University of Essex, Department of Economics.
  3. Stephen Turnovsky, 1998. "On the Role of Government in a Stochastically Growing Open Economy," Discussion Papers in Economics at the University of Washington 0073, Department of Economics at the University of Washington.
  4. Roy Cerqueti & Raffaella Coppier, 2009. "Economic growth, corruption and tax evasion," Working Papers 58-2009, Macerata University, Department of Finance and Economic Sciences, revised Jan 2010.
  5. Turnovsky, S.J., 1991. "The Impact of terms of Trade Shocks on a Small Open Economy: A Stochastic Analysis," Discussion Papers in Economics at the University of Washington 91-19, Department of Economics at the University of Washington.
  6. Paolo Mauro, 2002. "The Persistence of Corruption and Slow Economic Growth," IMF Working Papers 02/213, International Monetary Fund.
  7. Ira N. Gang & Amal Sanyal & Omkar Goswami, 1998. "Corruption, Tax Evasion and the Laffer Curve," Departmental Working Papers 199604, Rutgers University, Department of Economics.
  8. Ratbek Dzhumashev, 2007. "Corruption, Uncertainty And Growth," Monash Economics Working Papers 15-07, Monash University, Department of Economics.
  9. Lin, Wen-Zhung & Yang, C. C., 2001. "A dynamic portfolio choice model of tax evasion: Comparative statics of tax rates and its implication for economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 25(11), pages 1827-1840, November.
  10. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
  11. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
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