Monday 5 June – 1:15pm-2:15pm

Tax evasion and government debt dynamics

Francesco Menoncin, Full Professor of Economic Policy, University of Brescia




We study the relationship between tax evasion and economic growth in a stochastic continuous time model where public expenditure is used to improve private capital productivity and its cost may be financed by public debt. In our mode we define the debt to be sustainable if the optimal debt/GDP ratio converges towards a finite equilibrium that is endogenous to the model. We show that, although the level of public expenditure which maximizes growth does not depend on audit parameters, evasion reduces the range of parameters for which the debt/GPD ratio is mean reverting. In other words, tax evasion makes that public debt less sustainable. This negative effect of tax evasion is even worse for economies that grow at a lower pace: in the presence of tax evasion the debt/GDP ratio is mean reverting only if the total factor productivity is sufficiently strong.



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📍 The seminar will take place at emlyon business School (Ecully campus) – Room Amphi 67 – building B.


Prof. Francesco Menoncin


Full Professor of Economic Policy, University of Brescia