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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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    References listed on IDEAS

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    1. Giles, David E A, 1999. "Measuring the Hidden Economy: Implications for Econometric Modelling," Economic Journal, Royal Economic Society, vol. 109(456), pages 370-380, June.
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    8. Gupta, Rangan, 2008. "Tax evasion and financial repression," Journal of Economics and Business, Elsevier, vol. 60(6), pages 517-535.
    9. Pierre‐Richard Agénor & Kyriakos C. Neanidis, 2011. "The Allocation Of Public Expenditure And Economic Growth," Manchester School, University of Manchester, vol. 79(4), pages 899-931, July.
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    11. 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.
    12. Been-Lon Chen, 2003. "Tax Evasion in a Model of Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 381-403, April.
    13. Rangan Gupta, 2005. "Costly State Monitoring and Reserve Requirements," Annals of Economics and Finance, Society for AEF, vol. 6(2), pages 263-288, November.
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