Wealth Tax Evasion, Tax Morale, and the Inequality–Growth Nexus
Abstract
This study develops a stochastic growth model to investigate how tax morale, a nonfinancial cost of evasion, shapes the growth–inequality nexus. High tax morale sustains a no-evasion equilibrium in which the economy attains its maximum potential growth rate without worsening inequality. Low tax morale instead produces an inefficient evasion equilibrium. In that equilibrium, stochastic evasion slows growth and generates a stationary double-Pareto wealth distribution. The model also produces a non-monotonic relationship between growth and inequality—an inequality overhang—through the endogenous response of evasion to the wealth-tax rate.