1. A Growth Model with Income Tax Evasion: Some Implications for Australia.
- Author
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DZHUMASHEV, RATBEK and GAHRAMANOV, EMIN
- Subjects
TAX evasion ,PUBLIC spending ,EVASION (Law) ,TAX rates - 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. [ABSTRACT FROM AUTHOR]
- Published
- 2010
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