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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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    2. Nicholas Apergis & Dan Constantin Dănuleţiu, 2013. "Public deficit, public debt, corruption and economic freedom: some empirical evidence from Romania," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(48), pages 3-22, June.
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    8. Mohamed Ali Trabelsi & Hédi Trabelsi, 2020. "At what level of corruption does economic growth decrease?," Journal of Financial Crime, Emerald Group Publishing Limited, vol. 28(4), pages 1317-1324, March.
    9. Pham Khanh & Nguyen Khac Minh & Nguyen Thi Xuan Thu, 2022. "An optimization approach to the link between productivity, relocation cost and corruption," Annals of Operations Research, Springer, vol. 312(1), pages 427-439, May.
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    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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