Tax rates, tax evasion, and growth in a multi-period economy

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5 Citations (Scopus)


We extend the basic tax evasion model to a multi-period economy exhibiting sustained growth. When individuals conceal part of their true income from the tax authority, they face the risk of being audited and hence of paying the corresponding fine. Both taxes and fines determine individual saving and the rate of capital accumulation. We show that, if the penalty imposed on tax evaders is proportional to the amount of evaded taxes, then the growth rate is decreasing in the tax rate. However, the relationship between growth and tax rate becomes non-monotonic when the penalty rate is imposed on the amount of evaded income. © 2007, Instituto de Estudios Fiscales.
Original languageEnglish
Pages (from-to)67-80
JournalHacienda Pública Española/Review of Public Economics
Issue number4
Publication statusPublished - 1 Dec 2007


  • Growth
  • Tax evasion


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