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Why People Tolerate Underground Economy and Tax Evasion?

Soldatos, Gerasimos T. (1995): Why People Tolerate Underground Economy and Tax Evasion? Published in: Giornale degli Economisti e Annali di Economia , Vol. 54, (1995): pp. 621-633.

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An answer to this question is provided on the basis of a game-theoretic analysis connected methodologically with an intertemporal maximization model since a game played repeatedly over time, brings forward for consideration the present value of a sequence of payoffs. An optimal control problem arises for each individual, a problem that has to take into account the uncertainty stemming from the playing of mixed strategies. The result is that all of us cheat at least a little bit the state, and that we may not be sure that the state does not want us to do so: underground economy and/or tax evasion may be a necessary evil whenever they stabilize the economy and whenever they aid economic development.

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