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A dynamic portfolio choice model of tax evasion: Comparative statics of tax rates and its implication for economic growth. (English) Zbl 0979.91069

Summary: 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.

MSC:

91B64 Macroeconomic theory (monetary models, models of taxation)
91B62 Economic growth models
91G10 Portfolio theory
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