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Can tax evasion tame Leviathan governments?

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  • Manfred Gärtner

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  • Frode Brevik

    ()

Abstract

This paper looks at how income tax rates, consumption and public spending respond as venues for tax evasion open or close. The analysis draws on a 16-generation OLG model in which tax rates are determined in a repeated game between voters and a rent-seeking Leviathan government. Key insights are: (1) Effects on any generation alive when change takes place may differ substantially from steady state effects that accrue for generations yet to be born. (2) There is considerable intergenerational diversity in these effects that is not monotonous as we move from young to old. Combined, these results suggest that the political economy of pertinent institutional change may be quite complex.

Suggested Citation

  • Manfred Gärtner & Frode Brevik, 2006. "Can tax evasion tame Leviathan governments?," University of St. Gallen Department of Economics working paper series 2006 2006-19, Department of Economics, University of St. Gallen.
  • Handle: RePEc:usg:dp2006:2006-19
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/dp2006/DP19_Ga.pdf
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    References listed on IDEAS

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    1. Wolfgang Eggert & Martin Kolmar, 2004. "The Taxation of Financial Capital under Asymmetric Information and the Tax-competition Paradox," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 83-106, March.
    2. Torsten Persson & Gerard Roland & Guido Tabellini, 2000. "Comparative Politics and Public Finance," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1121-1161, December.
    3. Huizinga, Harry & Nielsen, Soren Bo, 2003. "Withholding taxes or information exchange: the taxation of international interest flows," Journal of Public Economics, Elsevier, vol. 87(1), pages 39-72, January.
    4. Boadway, Robin & Keen, Michael, 1998. "Evasion and Time Consistency in the Taxation of Capital Income," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 461-476, May.
    5. Rogers, Carol Ann, 1987. "Expenditure taxes, income taxes, and time-inconsistency," Journal of Public Economics, Elsevier, vol. 32(2), pages 215-230, March.
    6. Kollintzas, T. & Philippopoulos, A. & Vasillatos, V., 1999. "Is Tax Policy Coordination Necessary?," Athens University of Economics and Business 110, Athens University of Economics and Business, Department of International and European Economic Studies.
    7. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
    8. Jan Schnellenbach, 2006. "Tax Morale and the Taming of Leviathan," Constitutional Political Economy, Springer, vol. 17(2), pages 117-132, June.
    9. V. V. Chari & Patrick J. Kehoe & Edward C. Prescott, 1988. "Time consistency and policy," Staff Report 115, Federal Reserve Bank of Minneapolis.
    10. Bacchetta, Philippe & Espinosa, Maria Paz, 1995. "Information sharing and tax competition among governments," Journal of International Economics, Elsevier, vol. 39(1-2), pages 103-121, August.
    11. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
    12. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
    13. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    14. Philippe Bacchetta & María Espinosa, 2000. "Exchange-of-Information Clauses in International Tax Treaties," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(3), pages 275-293, May.
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    Cited by:

    1. 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.

    More about this item

    Keywords

    Leviathan government; income tax; tax evasion; public spending; rent seeking;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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