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.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Underground economy, Tax evasion, Mixed strategies
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements

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