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

Author

Listed:
  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Emmanuel Ziramba

    (Department of Economics, University of South Africa)

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.

Suggested Citation

  • Rangan Gupta & Emmanuel Ziramba, 2008. "Tax Evasion and Financial Repression: A Reconsideration Using Endogenous Growth Models," Working Papers 200808, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:200808
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    Cited by:

    1. 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.
    2. Bittencourt, Manoel & Gupta, Rangan & Stander, Lardo, 2014. "Tax evasion, financial development and inflation: Theory and empirical evidence," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 194-208.
    3. Rangan Gupta, 2011. "Currency Substitution and Financial Repression," International Economic Journal, Taylor & Francis Journals, vol. 25(1), pages 47-61.
    4. Rangan Gupta & Lardo Stander & Andrea Vaona, 2023. "Openness and growth: Is the relationship non‐linear?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3071-3099, July.
    5. Rangan Gupta & Cobus Vermeulen, 2010. "Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting," Annals of Economics and Finance, Society for AEF, vol. 11(1), pages 139-153, May.
    6. repec:rza:wpaper:099 is not listed on IDEAS
    7. Pavitra Dhamija, 2020. "Economic Development and South Africa: 25 Years Analysis (1994 to 2019)," South African Journal of Economics, Economic Society of South Africa, vol. 88(3), pages 298-322, September.
    8. Rangan Gupta & Emmanuel Ziramba, 2010. "Optimal public policy with endogenous mortality," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(3), pages 241-249.

    More about this item

    Keywords

    Underground Economy; Tax evasion; Macroeconomic Policy;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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