Asymmetric Information, Tax Evasion and Alternative Instruments of Government Revenue
Using a pure-exchange overlapping generations model, characterized with tax evasion and information asymmetry between the government (the social planner) and the financial intermediaries, we try and seek for the optimal tax and seigniorage plans, derived from the welfare maximizing objective of the social planner. We show that irrespective of whether the economy is characterized by tax evasion, or asymmetric information, a benevolent social planner, maximizing welfare and simultaneously financing the budget constraint, should optimally rely on explicit rather than implicit taxation.
|Date of creation:||Jul 2005|
|Note:||This is a revised version of the fourth chapter of my dissertation at the University of Connecticut. I am particularly grateful to my advisors Christian Zimmermann and Dhammika Dharmapala for many helpful comments and discussions. All remaining errors are mine.|
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