Why People Tolerate Underground Economy and Tax Evasion?

Gerasimos Soldatos

MPRA Paper from University Library of Munich, Germany

Abstract: An answer to this question is provided on the basis of a game-theoretic analysis connected methodologically with an intertemporal maximization model since a game played repeatedly over time, brings forward for consideration the present value of a sequence of payoffs. An optimal control problem arises for each individual, a problem that has to take into account the uncertainty stemming from the playing of mixed strategies. The result is that all of us cheat at least a little bit the state, and that we may not be sure that the state does not want us to do so: underground economy and/or tax evasion may be a necessary evil whenever they stabilize the economy and whenever they aid economic development.

Keywords: Underground economy; Tax evasion; Mixed strategies (search for similar items in EconPapers)
JEL-codes: C72 H26 O17 (search for similar items in EconPapers)
Date: 1995
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