Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128037
Authors: 
Yesin, Pinar Ayse
Year of Publication: 
2006
Series/Report no.: 
Working Paper, Study Center Gerzensee 06.01
Abstract: 
In a simple cash-credit model, I study the effects of the combination of costly tax collection and tax evasion on fiscal and monetary policy for optimal resource allocation. Allowing the informal sector to use cash more intensively than the formal sector, I compute the optimal interest and tax rates for eleven OECD countries to finance their exogeneously given government spending. A comparison of the actual and optimal interest rates reveals that tax collection costs and tax evasion together can partly explain the cross-country differences in monetary policy, also rationalizing deviations from the Friedman Rule in the long-run.
Subjects: 
Optimal Interest Rates
Tax Collection Costs
Tax Evasion
Friedman Rule
Cashintensive Informal Sector
Inflationary Finance
JEL: 
E63
H21
H26
Document Type: 
Working Paper

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