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Economic growth, corruption and tax evasion

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  • Cerqueti, Roy
  • Coppier, Raffaella

Abstract

In this paper, we explore tax revenues in a regime of widespread corruption in a growth model. We develop a Ramsey model of economic growth with a rival but non-excludable public good which is financed by taxes which can be evaded via corrupt tax inspectors. We prove that the relationship between the tax rate and tax collection, in a dynamic framework, is not unique, but is different depending on the relevance of the "shame effect". We show that in all three cases -- "low, middle and high shame" countries, the growth rate increases as the tax rate increases up to a threshold value, after which the growth rate begins to decrease as the tax rate increases. But, for intermediate tax rates, the rate of growth for "low shame" countries is lower than that of "uniform shame" countries which is, in turn, lower than that of "high shame" countries. This happens because the growth rate is more sensitive to variations of t in an honest country rather than in a corrupt country.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 1-2 (January)
Pages: 489-500

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:1-2:p:489-500

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Corruption Evasion Tax revenues Economic growth;

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Cited by:
  1. James Alm & Jorge Martinez-Vazquez & Chandler McClellan, 2014. "Corruption and Firm Tax Evasion," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1422, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Fred Célimène & Gilles Dufrénot & Gisèle Mophou & Gaston N’Guérékata, 2013. "Tax evasion, tax corruption and stochastic growth," William Davidson Institute Working Papers Series wp1043, William Davidson Institute at the University of Michigan.
  3. repec:rej:journl:v:16:y:2013:i:47:p:3-22 is not listed on IDEAS
  4. Capasso, Salvatore & Jappelli, Tullio, 2013. "Financial development and the underground economy," Journal of Development Economics, Elsevier, vol. 101(C), pages 167-178.
  5. Manoel Bittencourt & Rangan Gupta & Lardo Stander, 2013. "Tax evasion, financial development and inflation: theory and empirical evidence," Working Papers 201316, University of Pretoria, Department of Economics.

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