Exploring tax evasion in the context of political uncertainty

Barbara Katz and Joel Owen

Economic Systems, 2013, vol. 37, issue 2, 141-154

Abstract: We present a model of agents facing the uncertainty of two future forms of government who are able to insure against this uncertainty by hiding funds from taxation. In order to choose whether or not to hide funds from taxation, agents need to know policy choices that each government would make should it come to power. But each government, before it could make its decision, would need to know the choices of the agents who would, for example, produce tax revenues. This informational tension is resolved endogenously. We derive the resulting level of tax evasion in society and the optimal choices made by the potential governments. We examine how changes in governmental structure would affect the level of tax evasion, and how that, in turn, would affect a particular form of capital flight.

Keywords: Tax evasion; Political uncertainty; Economic uncertainty; Policy uncertainty; Economies in transition (search for similar items in EconPapers)
JEL-codes: K42 P26 P27 P37 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:37:y:2013:i:2:p:141-154

DOI: 10.1016/j.ecosys.2012.12.005

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