Cultural Norms, the Persistence of Tax Evasion, and Economic Growth

Dimitrios Varvarigos ()

No 15/10, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: I study the effects of tax evasion on economic growth by focusing on the cultural aspects of tax compliance and their effect on the extensive margin of tax evasion. A cultural norm that determines the contemptibility of tax dodging practices links the past incidence of tax evasion with the tax payers’ current incentives to conceal sources of income. This dynamic complementarity may lead to multiple equilibria in the evolution of tax evasion. Due to the latter’s effect on capital accumulation, this multiplicity may lead economies in divergent development paths, as long as they differ in the initial magnitude of tax evasion. This happens even though economies may be, on the outset, identical in terms of capital stock and structural characteristics, including those that govern tax enforcement.

Keywords: Tax evasion; Economic Growth; Cultural Norms (search for similar items in EconPapers)
JEL-codes: H26 O41 Z1 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-gro, nep-iue, nep-pbe and nep-soc
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