Tax evasion and optimal corporate income tax rates in a growing economy

Abstract We explore how tax evasion by firms affects the growth- and welfare-maximizing rates of corporate income (CIT) in an endogenous growth model with productive public service. show that negative effect CIT on is mitigated presence evasion. This increases benefit raising rate for service provision. Thus, contrast to Barro [(1990) Journal Political Economy 98, 103–125], optimal higher than output elasticity Through numerical exercises, we demonstrate role quantitatively significant.