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Corruption, Harassment and Evasion in Tax Collection

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  • Nitin Kumar

    (Indira Gandhi Institute of Development Research, Mumbai 400065, India)

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    Abstract

    The phenomenon of tax evasion is a universal problem especially prevalent in transition economies. What is the compliance/evasion decision of the taxpayers in presence of corruptible inspector and revenue maximizing government? How does a corrupt regime affect the task of tax collection? What is the optimal audit scheme for the government? This paper studies the strategic interaction between taxpayer and inspector in a sequential game theoretic framework and finds that despite inspection there can be suboptimal collection of taxes in a corrupt regime because of harassment, bribery and the possibility of collusion between the inspector and the taxpayer. In a corrupt regime the cost of corruption has a regressive bias. Also, it is interesting to note that under such a setup the proportional evasion performed by the poorer section is more than that of the richer section.

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    Bibliographic Info

    Article provided by Department of Economics, Delhi School of Economics in its journal Indian Economic Review.

    Volume (Year): 43 (2008)
    Issue (Month): 1 (July)
    Pages: 125-139

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    Handle: RePEc:dse:indecr:v:43:y:2008:i:1:p:125-139

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    Related research

    Keywords: Tax Evasion; Corruption; Harassment; Extortion;

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