A Dynamic Approach to Tax Evasion

Abstract

Standard models of tax evasion use a static decision-under-uncertainty setting to determine how an individual’s evasion decision is affected by the fiscal instruments. Most of these models fail to create a framework, within which unique relationships between tax evasion and its main determinants (especially tax rates and actual income) could be derived. The purpose of this paper is to establish a new pattern of unambiguous relationships in the evasion theory, by shifting the emphasis from the comparative static analysis of previous studies to a comparative-dynamics framework in the context of a neoclassical growth model, in which time and the average burden from all kinds of taxes also play an important role in affecting the taxpayer’s decision making process.