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1 results

  • Tax evasion and debt dynamics with endogenous growth

  • Rosella Levaggi, Francesco Menoncin
  • Journal:
    Macroeconomic Dynamics / Volume 29 / 2025
    Published online by Cambridge University Press:
    03 February 2025, e76
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  • In this note, we study the relationship between tax evasion and economic growth in a model where public expenditure allows to improve private capital productivity, and it is financed by both taxes and public debt. Here, we define debt to be sustainable if the debt/GDP ratio resulting from agents optimization converges toward a finite equilibrium that is endogenous to the model. We show that: (i) the level of public expenditure which maximizes growth does not depend on audit parameters, (ii) evasion reduces the range of parameters for which the debt/GDP ratio is sustainable, and (iii) the debt/GDP ratio is sustainable if the total factor productivity is sufficiently high.