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Costly Tax Enforcement and Financial Repression: A Reconsideration Using an Endogenous Growth Model

Rangan Gupta () and Emmanuel Ziramba

No 200820, Working Papers from University of Pretoria, Department of Economics

Abstract: Using a monetary endogenous growth overlapping generations model characterized by financial repression, purposeful government expenditures and costly tax enforcement, we analyze whether financial repression can be explained by the cost involved in raising taxes. Note financial repression is modeled via ``high" obligatory reserve requirements that banks in the economy need to hold. We show that higher costs of tax collection produces a monotonic increase in reserve requirements. Moreover, the government tends to rely more on indirect taxation, compared to direct taxation, as costs of tax collection increases.

Keywords: Costly tax Enforcement; Financial Repression; Endogenous Growth; Overlapping Generations Model (search for similar items in EconPapers)
JEL-codes: E62 H21 O41 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2008-06
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
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