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Tax Evasion and Financial Repression: A Reconsideration Using Endogenous Growth Models

Rangan Gupta () and Emmanuel Ziramba

No 200808, Working Papers from University of Pretoria, Department of Economics

Abstract: Using two dynamic monetary general equilibrium models characterized by endogenous growth, financial repression and endogenously determined tax evasion, we analyze whether financial repression can be explained by tax evasion. When calibrated to four Souther European economies, we show that higher degrees of tax evasion within a country, resulting from a higher level of corruption and a lower penalty rate, yields higher degrees of financial repression as a social optimum. However, a higher degree of tax evasion, due to a lower tax rate, reduces the severity of the financial restriction. In addition, we find the results to be robust across growth models with or without productive public expenditures. The only difference being that the policy parameters in the former case have higher optimal values.

Keywords: Underground Economy; Tax evasion; Macroeconomic Policy (search for similar items in EconPapers)
JEL-codes: E26 E63 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008-05
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-reg
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Journal Article: Tax evasion and financial repression: a reconsideration using endogenous growth models (2009) Downloads
Working Paper: Tax evasion and financial repression: A reconsideration using endogenous growth models (2008) Downloads
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