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Why must it always be so Real with tax evasion?

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  • Gupta, Rangan
  • Makena, Philton

Abstract

We provide an alternative theoretical explanation to the tax evasion-inflation relationship by endogenizing the discount factor in an overlapping generations economy. When the discount factor is a positive function of public expenditure, i.e., discounting is endogenous, then an increase in inflation leads to an increase seigniorage, and hence the discount factor via the rise 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.

Suggested Citation

  • Gupta, Rangan & Makena, Philton, 2020. "Why must it always be so Real with tax evasion?," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 304-308.
    • Handle: RePEc:eee:quaeco:v:78:y:2020:i:c:p:304-308
    DOI: 10.1016/j.qref.2020.04.006
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