Tax Policy with Heterogeneous Agents, Corruption and Tax Evasion in Developing Countries : case of Cameroon

Abstract

This article quantitatively assesses the role of tax evasion and corruption in the conduct of fiscal policy in developing countries such as Cameroon. Using Bayesian estimation techniques via the SSJ (Sequence Space Jacobian) method, we estimate two heterogeneous agent models (HANK model), one with corruption and tax evasion and another without corruption and tax evasion. The results show that corruption and tax evasion increase inequality, hinder economic growth by slowing investment, reducing productivity and increasing the cost of economic activity, discourage investment, leading to a fall in economic activity and employment, and increase public debt. JEL Classification E21, E31, E40, E50, E52, E62