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Costly Tax Enforcement and Financial Repression

Author

Listed:
  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Emmanuel Ziramba

    (Department of Economics, University of South Africa)

Abstract

Using a simple pure-exchange overlapping generations model characterized by financial repression, purposeful government expenditures and cost of tax collection, we analyze whether financial repression can be explained by the cost of raising taxes. We show that with public expenditures affecting utility of the agents, modest costs of tax collection tend to result in financial repression being pursued as an optimal policy by the consolidated government. However, when public expenditures are purposeless, the above result only holds for relatively higher costs of tax collection. But, more importantly, costs of tax collection cannot produce a monotonic increase in the reserve requirements, what are critical, in this regard, are the weights the consumer assigns to the public good in the utility function and the size of the government.

Suggested Citation

  • Rangan Gupta & Emmanuel Ziramba, 2008. "Costly Tax Enforcement and Financial Repression," Working Papers 200818, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:200818
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    Cited by:

    1. Rangan Gupta & Lardo Stander & Andrea Vaona, 2023. "Openness and growth: Is the relationship non‐linear?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3071-3099, July.
    2. Rangan Gupta & Cobus Vermeulen, 2010. "Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting," Annals of Economics and Finance, Society for AEF, vol. 11(1), pages 139-153, May.
    3. Rangan Gupta, 2011. "Currency Substitution and Financial Repression," International Economic Journal, Taylor & Francis Journals, vol. 25(1), pages 47-61.
    4. Norkina, O. & Pekarski, S., 2015. "Nonmarket Debt Placement As Financial Repression," Journal of the New Economic Association, New Economic Association, vol. 28(4), pages 31-55.
    5. Olga A. Norkina & Sergey E. Pekarski, 2014. "Optimal Financial Repression," HSE Working papers WP BRP 81/EC/2014, National Research University Higher School of Economics.
    6. Rangan Gupta & Emmanuel Ziramba, 2010. "Optimal public policy with endogenous mortality," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(3), pages 241-249.

    More about this item

    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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