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Tax Evasion and Optimal Corporate Income Tax Rates in a Growing Economy

Takeo Hori, Noritaka Maebayashi and Keiichi Morimoto ()

MPRA Paper from University Library of Munich, Germany

Abstract: We explore how tax evasion by firms affects the growth- and welfare-maximizing rates of corporate income tax (CIT) in an endogenous growth model with productive public service. We show that the negative effect of CIT on growth is mitigated in the presence of tax evasion. This increases the benefit of raising the CIT rate for public service provision. Thus, in contrast to Barro (1990), the optimal tax rate is higher than the output elasticity of public service. Through numerical exercises, we demonstrate that the role of tax evasion by firms is quantitatively significant.

Keywords: corporate income tax; tax evasion; growth; welfare (search for similar items in EconPapers)
JEL-codes: H21 H26 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-iue, nep-pbe and nep-pub
Date: 2018-12-22
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Working Paper: Tax Evasion and Optimal Corporate Income Tax Rates in a Growing Economy (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:90787

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