Economic growth, corruption and tax evasion

Roy Cerqueti and Raffaella Coppier
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Raffaella Coppier: University of Macerata

No 58-2009, Working Papers from Macerata University, Department of Finance and Economic Sciences

Abstract:

In this paper, we explore tax revenues in a regime of widespread corruption in a growth model. We develop a Ramsey model of economic growth with rival but non-excludable public good which is financed by taxes which can be evaded via corrupt tax inspector. We prove that the relationship between the tax rate and tax collection, in a dynamic framework, is not unique, but is different depending on the relevance of the shame effect. We show that growth rates - both of income and of tax revenues - decrease, as the tax rate increases, for all types of shame effect countries but they differ in how the growth rate decreases as the tax rate increases: the rate of decrease is higher in low shame countries than in high shame countries.

Date: 2009-12, Revised 2010-01
New Economics Papers: this item is included in nep-fdg
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Related works:
Journal Article: Economic growth, corruption and tax evasion (2011)
Journal Article: Economic growth, corruption and tax evasion (2011)
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