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ABSTRACT We incorporate tax evasion to a demand‐led macrodynamic model of capacity utilization and output growth rate. The frequency of tax evaders is endogenously time‐varying, driven by imitation‐augmented satisficing evolutionary dynamics involving pecuniary factors, as well as non‐pecuniary elements which are reflected in the distribution of tax morale across taxpayers. Consequently, the microdiversity of tax compliance behavior and the macrodynamics of economic activity are co‐evolutionarily coupled. Matching empirical evidence, heterogeneity in tax compliance behavior is a stable evolutionary equilibrium, and the higher the median tax morale across taxpayers, the lower the frequency of tax evaders. Other comparative statics results in line with empirical evidence are obtained analytically and through numerical simulations.
Barros‐Torres et al. (Mon,) studied this question.