A Quantitative View on Policymakers’ Goals, Institutions and Tax Evasion

Quality & Quantity, (2013) DOI: 10.1007/s11135-013-9849-x

Posted: 22 Aug 2014

See all articles by Maurizio Bovi

Maurizio Bovi

University of Rome I - Department of Economics and Law; ISTAT, Italian National Institute for Statistics

Roy Cerqueti

Independent

Date Written: August 21, 2013

Abstract

We develop a general theoretical model to compare two different policymakers both facing tax evasion. Policymakers differs in that they aim to maximize either the fiscal revenues (T ) as in a social-democracy as, e.g., Sweden, or the GDP as in a capitalistic country as, e.g., the USA. Both Bureaus can manoeuvre the tax rate and the share of tax receipts spent to fight the tax evasion rather than to increase the public capital. Our model merges the indications of two distinct, and sometimes conflicting, approaches to the analysis of tax evasion in that reconciling them.We also find that the feedbacks between the private and public sector are linked to some Laffer-type relationships usually unexplored by the existing literature.As compared to capitalistic systems, then, our results showthat social-democracies end up imposing higher tax rates and, possibly, more pervasive regulations. Consequently, they are likely to suffer from larger tax-evasion-to-GDP ratios. This notwithstanding, socialdemocracies spend relativelymore to contrast tax dodgers. On the other hand, T-maximizing governments have better institutional settings and greater employment rates. Whichever the preferred target, however, no policymaker is able to erase totally the tax evasion, which may explain why this latter is so pervasive and persistent even among the richest countries.

Keywords: Quantitative model, Bureaucracy, Tax evasion, Regulations, Taxation

Suggested Citation

Bovi, Maurizio and Cerqueti, Roy, A Quantitative View on Policymakers’ Goals, Institutions and Tax Evasion (August 21, 2013). Quality & Quantity, (2013) DOI: 10.1007/s11135-013-9849-x, Available at SSRN: https://ssrn.com/abstract=2484424

Maurizio Bovi (Contact Author)

University of Rome I - Department of Economics and Law ( email )

via Castro del Laurenziano 9
Roma, 00191
Italy

ISTAT, Italian National Institute for Statistics ( email )

Piazza dell' Indipendenza 4
I-00185
Italy

Roy Cerqueti

Independent ( email )

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