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Why People Tolerate Underground Economy and Tax Evasion?

Author

Listed:
  • Soldatos, Gerasimos T.

Abstract

An answer to this question is provided on the basis of a game-theoretic analysis connected methodologically with an intertemporal maximization model since a game played repeatedly over time, brings forward for consideration the present value of a sequence of payoffs. An optimal control problem arises for each individual, a problem that has to take into account the uncertainty stemming from the playing of mixed strategies. The result is that all of us cheat at least a little bit the state, and that we may not be sure that the state does not want us to do so: underground economy and/or tax evasion may be a necessary evil whenever they stabilize the economy and whenever they aid economic development.

Suggested Citation

  • Soldatos, Gerasimos T., 1995. "Why People Tolerate Underground Economy and Tax Evasion?," MPRA Paper 58545, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:58545
    as

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    File URL: https://mpra.ub.uni-muenchen.de/58545/1/MPRA_paper_58545.pdf
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    References listed on IDEAS

    as
    1. Léonard,Daniel & Long,Ngo van, 1992. "Optimal Control Theory and Static Optimization in Economics," Cambridge Books, Cambridge University Press, number 9780521331586.
    2. Anand, Paul, 1995. "Foundations of Rational Choice Under Risk," OUP Catalogue, Oxford University Press, number 9780198774426.
    3. Lemieux, Thomas & Fortin, Bernard & Frechette, Pierre, 1994. "The Effect of Taxes on Labor Supply in the Underground Economy," American Economic Review, American Economic Association, vol. 84(1), pages 231-254, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Underground economy; Tax evasion; Mixed strategies;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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