Tax evasion, the underground economy and financial development

Abstract

a b s t r a c tWe study the relationship between the underground economy and financial development in a model of tax evasion and bank intermediation. Agents with heterogeneous skills seek loans in order to undertake risky investment projects. Asymmetric information between borrowers and lenders implies a menu of loan contracts that induce self-selection in a separating equilibrium. Faced with these contracts, agents choose how much of their income to declare by trading off their incentives to offer collateral against their disincentives to comply with tax obligations. The key implication of the analysis is that the marginal net benefit of income disclosure increases with the level of financial development. Thus, in accordance with empirical observation, we establish the result that the lower is the stage of such development, the higher is the incidence of tax evasion and the greater is the size of the underground economy.Published by Elsevier B.V.

Tax evasion, financial development and inflation: Theory and empirical evidence

“…These results are consistent with those obtained by Blackburn et al (2010) as well as Bose et al (2012). The recent empirical work by Neely and Rapach (2011) on how common shocks, similar central bank functions and policy as well as international trade and capital flows produce commonality in international inflation, offers a more credible explanation for the not significant M oneygr results reported in column (3), (4) and (5).…”

“…-Victor Hugo 1 Recent empirical evidence provided by Bose, Capasso and Wurm (2012) show that an improvement in the development of the banking sector is associated with a smaller shadow economy. The findings of Bose et al (2012) corroborate indicative theoretical results reported by Blackburn, Bose and Capasso (2010) that a less-developed financial sector corresponds to the observance of a bigger shadow economy. Blackburn et al (2010) studied the relationship between the underground economy and financial development in a model of tax evasion and bank intermediation.…”

“…The findings of Bose et al (2012) corroborate indicative theoretical results reported by Blackburn, Bose and Capasso (2010) that a less-developed financial sector corresponds to the observance of a bigger shadow economy. Blackburn et al (2010) studied the relationship between the underground economy and financial development in a model of tax evasion and bank intermediation. In their model, agents with heterogeneous skills seek loans in order to undertake risky investment projects, with asymmetric information between borrowers and lenders implying a menu of loan contracts that induce self-selection in a separating equilibrium.…”

Financial development and tax revenues in Turkey: A non-linear cointegration analysis

“…Moreover, he also found that financial openness had positive impact on tax revenue and the effect of financial openness on tax revenue increased in the countries with higher development level of the banking sector. In another study, Blackburn et al (2012) investigated the interaction between financial development and the shadow economy in the model including banking intermediation and tax evasion and found that the tax evasion level and shadow economy rose, as long as the financial sector development reduced.…”

Рациональность Экономического Поведения При Выборе Осуществления Предпринимательской Деятельности В Теневом Секторе

“…Российское предпринимательство, 16(14), 2139-2148. doi:10.18334/rp.16.14.518 Введение Уклонение от уплаты налогов, неофициальная занятость, нелегальный отток капитала -борьба с этими и прочими многочисленными проявлениями теневой экономической деятельности стала важнейшей целью социально-экономической политики многих стран мира (Арипов, 2012;Верещагин, 2006;Гордиенко, 2009;Гордиенко, 2010;Дадалко, 2010;Нуштаев, 2011;Шавшуков, 2012;Blackburn, Bose, Capasso, 2012;Capasso, Jappelli, 2013;Carillo, Pugno, 2004;Orsi, Raggi, Turino, 2014). Среди последствий развития теневой экономики можно выделить увеличение дефицита государственного бюджета и сокращение инвестиций в инфраструктуру общественного сектора, потерю доверия к институтам общественного сектора и органам государственной власти, рост преступности.…”