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Economic growth, corruption and tax evasion

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  • Roy Cerqueti

    (University of Macerata)

  • Raffaella Coppier

    (University of Macerata)

Abstract

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.

Suggested Citation

  • 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.
  • Handle: RePEc:mcr:wpdief:wpaper00058
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    3. Célimène, Fred & Dufrénot, Gilles & Mophou, Gisèle & N'Guérékata, Gaston, 2016. "Tax evasion, tax corruption and stochastic growth," Economic Modelling, Elsevier, vol. 52(PA), pages 251-258.
    4. Capasso, Salvatore & Jappelli, Tullio, 2013. "Financial development and the underground economy," Journal of Development Economics, Elsevier, vol. 101(C), pages 167-178.
    5. Freire-Serén, María Jesús & Panadés i Martí, Judith, 2013. "Tax avoidance, human capital accumulation and economic growth," Economic Modelling, Elsevier, vol. 30(C), pages 22-29.
    6. Alm, James & Martinez-Vazquez, Jorge & McClellan, Chandler, 2016. "Corruption and firm tax evasion," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 146-163.
    7. 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.
    8. Serena Brianzoni & Raffaella Coppier & Elisabetta Michetti, 2015. "Multiple equilibria in a discrete time growth model with corruption in public procurement," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(6), pages 2387-2410, November.
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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