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

Author

Listed:
  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Emmanuel Ziramba

    (Department of Economics, University of South Africa)

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.

Suggested Citation

  • Rangan Gupta & Emmanuel Ziramba, 2008. "Costly Tax Enforcement and Financial Repression: A Reconsideration Using an Endogenous Growth Model," Working Papers 200820, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:200820
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    More about this item

    Keywords

    Costly tax Enforcement; Financial Repression; Endogenous Growth; Overlapping Generations Model;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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