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An OLG Model of Tax Evasion with Public Capital

Author

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  • Manoj Atolia

    () (Department of Economics, Florida State University)

Abstract

The paper presents a dynamic overlapping generations model of tax evasion where government revenue is used to provide public capital. It establishes existence and uniqueness of the competitive equilibrium and presents a detailed characterization of its dynamics. An increase in the probability of being caught, and the penal tax rate reduces tax evasion along the entire equilibrium path - a result that holds in the existing models in the literature across steady states. In the extended small open economy model with tariff on imported capital, distortions due to tax evasion wipe out the gains from the tariff reform.

Suggested Citation

  • Manoj Atolia, 2003. "An OLG Model of Tax Evasion with Public Capital," Working Papers wp2003_04_01, Department of Economics, Florida State University.
  • Handle: RePEc:fsu:wpaper:wp2003_04_01
    as

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    File URL: ftp://econpapers.fsu.edu/RePEc/fsu/wpaper/wp2003_04_01.pdf
    File Function: First version, 2003-04
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Bittencourt, Manoel & Gupta, Rangan & Stander, Lardo, 2014. "Tax evasion, financial development and inflation: Theory and empirical evidence," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 194-208.
    2. Gupta, Rangan, 2008. "Tax evasion and financial repression," Journal of Economics and Business, Elsevier, vol. 60(6), pages 517-535.

    More about this item

    Keywords

    Trade Reform; Welfare Analysis; Public Investment; Tax Evasion;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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