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Business culture and tax evasion: Why corruption and the unofficial economy can persist

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  • Çule, Monika
  • Fulton, Murray
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    Abstract

    This paper shows that business and tax inspection culture can create multiple equilibria. In bad equilibria (high cheating and corruption), increases in penalties or auditing can have perverse impacts and increase cheating. The source of the multiple equilibria is the externalities created by business and tax inspection cultures. As tax evasion and corruption become more common, they become more acceptable and their cost is lowered. A third externality - that between firms and inspectors - is the source of the perverse effect; more cheating by firms is good for bribe-taking inspectors and more bribe-taking inspectors are good for cheating firms.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 72 (2009)
    Issue (Month): 3 (December)
    Pages: 811-822

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    Handle: RePEc:eee:jeborg:v:72:y:2009:i:3:p:811-822

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    Web page: http://www.elsevier.com/locate/jebo

    Related research

    Keywords: Corruption Tax evasion Multiple equilibria Crime and punishment;

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    Cited by:
    1. Dobson, Stephen & Ramlogan-Dobson, Carlyn, 2012. "Why is Corruption Less Harmful to Income Inequality in Latin America?," World Development, Elsevier, vol. 40(8), pages 1534-1545.
    2. Maurizio Bovi & Roy Cerqueti, 2014. "A quantitative view on policymakers’ goal, institutions and tax evasion," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(3), pages 1493-1510, May.
    3. Jaanika Meriküll & Tairi Rõõm & Karsten Staehr, 2013. "Perceptions of unreported economic activities in Baltic Firms. Individualistic and non-individualistic motives," Bank of Estonia Working Papers wp2012-8, Bank of Estonia, revised 04 Feb 2013.
    4. Chongwoo Choe & Ratbek Dzhumashev & Asadul Islam & Zakir H. Khan, 2011. "Corruption and Network in Education: Evidence from the Household Survey Data in Bangladesh," Development Research Unit Working Paper Series 08-11, Monash University, Department of Economics.

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