Tax evasion and financial repression: a reconsideration using endogenous growth models

Purpose – This paper aims at developing a theoretical model of a world economy characterized by tax evasion. It seeks to analyze whether financial repression can be explained by tax evasion. Design/methodology/approach – The analysis is performed in overlapping generations dynamic general equilibrium endogenous monetary growth models. Findings – The paper shows that higher degree of tax evasion within a country, resulting from a higher level of corruption and a lower penalty rate, yields higher degrees of financial repression. Practical implications – Financial repression can be explained by tax evasion but under specific conditions. Originality/value – This is the first attempt to analyze financial repression and tax evasion in an endogenous growth model.