Higher levels of tax evasion in a corrupt economy, encourage policy making that hinders the functioning of private financial markets

Rangan Gupta and Emmanuel Ziramba, February, 2009

When amplified levels of corruption and reduced penalties for illegal behaviour encourage greater levels of tax evasion, the policy response will exacerbate measures that constrain the functioning of private‐sector financial markets. In the ERSA working paper “Tax evasion and financial repression: a reconsideration using endogenous growth models” (Working Paper No. 81), Rangan Gupta and Emmanuel Ziramba scrutinise the relationship between tax evasion and financial repression – a set of restrictions that inhibit financial market efficiency – with a view to establishing whether financial repression can be explained by tax evasion.

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Higher levels of tax evasion in a corrupt economy, encourage policy making that hinders the functioning of private financial markets