Tax Evasion and Economic Growth – A Neutrality Result
نویسنده
چکیده
An endogenous growth model is examined where individuals optimize consumption and tax evasion over time given the tax structure and tax compliance policy of the government. Applying methods of stochastic optimal control, the individual’s problem is solved and the rate of economic growth is derived. It is shown that for a given tax policy tax evasion spurs growth because it leads to higher savings. However, if the reaction of the government is taken into account, it is shown that a welfare maximizing government adjusts its tax rate upwards to ensure a sufficient provision of a public good. In effect, tax evasion has no impact on the growth rate. JEL classification: D91, E21, E26, H26
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