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- Title
A Growth Model with Income Tax Evasion: Some Implications for Australia.
- Authors
DZHUMASHEV, RATBEK; GAHRAMANOV, EMIN
- Abstract
We develop an endogenous growth model à la Barro (1990), augmented with income tax evasion. Unlike many traditional rational choice models of tax evasion, the numerical simulations of our model do not produce counter-intuitive results. Further, we show that: (i) accounting for evasion costs (while capturing the full risk associated with the tax evasion process) is important for obtaining realistic relationships between key model variables; (ii) productive government expenditures explicitly affect the economy's tax evasion rate; (iii) Barro's natural efficiency condition for setting the optimal statutory tax rate holds even in the presence of tax evasion; (iv) given realistic estimates of the public expenditure externality, the average marginal income tax rate in Australia is not too far away from the optimal one; and (v) differences in tax evasion opportunities aggravate inequality over time.
- Subjects
AUSTRALIA; TAX evasion; PUBLIC spending; EVASION (Law); TAX rates
- Publication
Economic Record, 2010, Vol 86, Issue 275, p620
- ISSN
0013-0249
- Publication type
Article
- DOI
10.1111/j.1475-4932.2010.00654.x