Tax evasion, financial development and inflation: Theory and empirical evidence
Rangan Gupta () and
Journal of Banking & Finance, 2014, vol. 41, issue C, 194-208
Using a standard overlapping generations monetary production economy, faced with endogenously determined tax evasion by heterogeneous agents in the economy, we provide a theoretical model that indicates that both a lower (higher) level of financial development and a higher (lower) level of inflation leads to a bigger (smaller) shadow economy. These findings are empirically tested within a panel econometric framework, using data collected for 150 countries over the period 1980–2009 to enable a broad generalisation of the results. The results support the developed theoretical model, even after having accounted for the differences in the levels of economic development, the level of institutional quality that includes different tax regimes and regulatory frameworks, central bank participation in the economy as well as different macroeconomic policies.
Keywords: Informal economy; Financial development; Inflation (search for similar items in EconPapers)
JEL-codes: C61 E26 P16 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (6) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Tax evasion, financial development and inflation: theory and empirical evidence (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:41:y:2014:i:c:p:194-208
Access Statistics for this article
Journal of Banking & Finance is currently edited by Ike Mathur
More articles in Journal of Banking & Finance from Elsevier
Series data maintained by Dana Niculescu ().