Can tax evasion tame Leviathan governments?

This paper asks to what extent institutional features that facilitate tax evasion may keep Leviathan governments at bay. The specific feature we look at is banking secrecy abroad. The analysis draws on a 16-generation OLG model in which tax rates are determined in a repeated game between voters and a rent-seeking Leviathan government. Key insights are: (1) Effects on any generation alive when change takes place may differ substantially from steady-state effects that accrue for generations yet to be born. (2) There is considerable intergenerational diversity in these effects that is not monotonic as we move from young to old. Combined, these results suggest that the political economy of pertinent institutional change may be quite complex.