Tax Evasion, Tax Policies and the Role Played by Financial Markets

Shalini Mitra

MPRA Paper from University Library of Munich, Germany

Abstract: In a dynamic general equilibrium model with credit constraints and heterogeneous firms I show that both tax policies and domestic financial market development (FD) can lead to lower informality. Tax policies are more effective in reducing informality since they directly increase the cost of informal production but they have limits, trade-offs and costly general equilibrium effects. FD lowers formal borrowing costs which increases the marginal benefit of hiring in the formal sector. Wage rate increases driving down informal production. Formal output, employment, tax revenue and welfare all increase with FD and counter or offset the negative effects of tax policies.

Keywords: Informal sector; tax policies; heterogenous firms; financial frictions (search for similar items in EconPapers)
JEL-codes: D5 D52 H26 O17 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-dge, nep-iue and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/58977/1/MPRA_paper_58977.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:58977

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().