✦ LIBER ✦

A dynamic portfolio choice model of tax evasion: Comparative statics of tax rates and its implication for economic growth

✍ Scribed by Wen-Zhung Lin; C.C. Yang

Publisher: Elsevier Science
Year: 2001
Tongue: English
Weight: 126 KB
Volume: 25
Category: Article
ISSN: 0165-1889
DOI: 10.1016/s0165-1889(99)00081-0

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✦ Synopsis

This paper extends the portfolio choice model of tax evasion from a static to a dynamic setting. It is shown that while higher tax rates repress tax evasion in the static model, they encourage tax evasion in the dynamic model. We explore a novel implication of this result and show that while growth is decreasing in tax rates in the absence of tax evasion, it is U-shaped in tax rates in the presence of tax evasion.