PUBLIC DEBT MANAGEMENT AND TAX EVASION

Amedeo Argentiero and Roy Cerqueti

Macroeconomic Dynamics, 2021, vol. 25, issue 3, 669-692

Abstract: This paper deals with the optimal management of the public debt-to-GDP ratio. We specifically focus on a contrasting tax evasion-based strategy for controlling the debt-to-GDP ratio. Two devices can be employed by the policymaker: by the one side, the tax rate is to be applied to the tax payers; by the other side, the monitoring activity is to be performed in order to detect the evaded taxes. To pursue our scopes, a stochastic control problem is developed and solved. Some numerical experiments validate the theoretical proposal and lead to an intuitive discussion of the obtained findings.

Date: 2021
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