Tax evasion and financial repression: a reconsideration using endogenous growth models

Abstract

Purpose

This paper aims at developing a theoretical model of a world economy characterized by tax evasion. It seeks to analyze whether financial repression can be explained by tax evasion.

Design/methodology/approach

The analysis is performed in overlapping generations dynamic general equilibrium endogenous monetary growth models.

Findings

The paper shows that higher degree of tax evasion within a country, resulting from a higher level of corruption and a lower penalty rate, yields higher degrees of financial repression.

Practical implications

Financial repression can be explained by tax evasion but under specific conditions.

Originality/value

This is the first attempt to analyze financial repression and tax evasion in an endogenous growth model.

Citation

Gupta, R. and Ziramba, E. (2009), "Tax evasion and financial repression: a reconsideration using endogenous growth models", Journal of Economic Studies, Vol. 36 No. 6, pp. 660-674. https://doi.org/10.1108/01443580911001788