Journal Article
No. 2007-6 |
June 28, 2007
Hidden Economies and the Socially Optimal Fiscal-Tax to Liquidity-Tax Ratio
Abstract
Differential tax analysis is used to show how the socially optimal fiscal-tax to liquidity-tax ratio changes with the relative size of the tax-evading hidden economy. The smaller the relative size of the hidden economy, the larger the optimal fiscal-tax to liquidity-tax ratio. The empirical cross-section and panel evidence supports this theoretical result.