Costly Tax Enforcement and Financial Repression
Using an overlapping generations production-economy model characterised by financial repression, purposeful government expenditures and tax collection costs, we analyse whether financial repression can be explained by the cost of raising taxes. We show that with public expenditures affecting utility of the agents, modest costs of tax collection tend to result in financial repression being pursued as an optimal policy by the consolidated government. However, when public expenditures are purposeless, the above result only holds for relatively higher costs of tax collection. But, more importantly, costs of tax collection cannot produce a monotonic increase in the reserve requirements. Of critical importance in this regard, are the weights the consumer assigns to the public good in the utility function and the size of the government.
Year of publication: |
2008
|
---|---|
Authors: | Gupta, Rangan ; Ziramba, Emmanuel |
Institutions: | Economic Research Southern Africa (ERSA) |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Tax evasion and financial repression: A reconsideration using endogenous growth models
Gupta, Rangan, (2008)
-
Currency Substitution and Financial Repression
Gupta, Rangan, (2008)
-
Measuring the welfare cost of inflation in South Africa
Gupta, Rangan, (2008)
- More ...