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Economic growth, corruption and tax evasion

  • Roy Cerqueti

    (University of Macerata)

  • Raffaella Coppier

    (University of Macerata)

In this paper, we explore tax revenues in a regime of widespread corruption in a growth model. We develop a Ramsey model of economic growth with rival but non-excludable public good which is financed by taxes which can be evaded via corrupt tax inspector. We prove that the relationship between the tax rate and tax collection, in a dynamic framework, is not unique, but is different depending on the relevance of the shame effect. We show that growth rates - both of income and of tax revenues - decrease, as the tax rate increases, for all types of shame effect countries but they differ in how the growth rate decreases as the tax rate increases: the rate of decrease is higher in low shame countries than in high shame countries.

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Paper provided by Macerata University, Department of Finance and Economic Sciences in its series Working Papers with number 58-2009.

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Date of creation: Dec 2009
Date of revision: Jan 2010
Handle: RePEc:mcr:wpdief:wpaper00058
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