Why must it always be so Real with Tax Evasion?

Rangan Gupta and Philton Makena ()
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Philton Makena: Department of Economics, University of Pretoria, Pretoria, South Africa

No 201872, Working Papers from University of Pretoria, Department of Economics

Abstract: We provide an alternative theoretical explanation to the tax evasion-inflation relationship by endogenizing the discount factor in a standard overlapping generations endowment economy. When the discount factor is a positive function of non-productive public expenditure, then inflation is bound to increase seigniorage, leading to an increase in public expenditure. In consequence, old age consumption increases in importance such that tax evasion among young-age agents increases to enhance the interest income from savings.

Pages: 9 pages
Date: 2018-11
New Economics Papers: this item is included in nep-dge, nep-iue, nep-pbe and nep-pub
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Journal Article: Why must it always be so Real with tax evasion? (2020)
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