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Imperfect Detection of Tax Evasion in a Corrupt Tax Administration

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  • Diego Escobari

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Abstract

This article models the imperfect detection of tax evasion motivated by the existence of a corrupt tax administration. Consistent with previous literature, fines and audit probabilities both have a positive effect on compliance. Moreover, the model shows that they have a negative effect on the bribes paid to corrupt tax officials. More corruption decreases compliance levels, giving honest auditors incentives to work harder to detect evasion. Giving inspectors a share of the detected evasion (tax farming) makes auditors work harder; however, increasing their wages reduces their exerted effort to discover evasion. Higher compliance can as well be achieved by hiring more efficient inspectors. Copyright Springer Science+Business Media, LLC 2012

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File URL: http://hdl.handle.net/10.1007/s11115-011-0172-5
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Bibliographic Info

Article provided by Springer in its journal Public Organization Review.

Volume (Year): 12 (2012)
Issue (Month): 4 (December)
Pages: 317-330

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Handle: RePEc:kap:porgrv:v:12:y:2012:i:4:p:317-330

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Web page: http://www.springerlink.com/link.asp?id=106610

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Keywords: Taxation; Evasion; Corruption; Tax administration;

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References

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  1. Hindriks, J. & Keen, M. & Muthoo, A., 1998. "Corruption, Extortion and Evasion," Discussion Papers 9809, Exeter University, Department of Economics.
  2. Bernasconi, Michele, 1998. "Tax evasion and orders of risk aversion," Journal of Public Economics, Elsevier, vol. 67(1), pages 123-134, January.
  3. Laszlo Goerke, 2008. "Bureaucratic corruption and profit tax evasion," Economics of Governance, Springer, vol. 9(2), pages 177-196, May.
  4. Vito Tanzi & Hamid Reza Davoodi, 2000. "Corruption, Growth, and Public Finances," IMF Working Papers 00/182, International Monetary Fund.
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  7. Jain, Arvind K, 2001. " Corruption: A Review," Journal of Economic Surveys, Wiley Blackwell, vol. 15(1), pages 71-121, February.
  8. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  9. Wane, Waly, 2000. "Tax evasion, corruption, and the remuneration of heterogeneous inspectors," Policy Research Working Paper Series 2394, The World Bank.
  10. Lee, Kangoh, 2001. "Tax evasion and self-insurance," Journal of Public Economics, Elsevier, vol. 81(1), pages 73-81, July.
  11. Chander, Parkash & Wilde, Louis, 1992. "Corruption in tax administration," Journal of Public Economics, Elsevier, vol. 49(3), pages 333-349, December.
  12. Volodymyr Bilotkach, 2006. "A Tax Evasion - Bribery Game: Experimental Evidence from Ukraine," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 3(1), pages 31-49, June.
  13. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  14. Antonio Acconcia & Marcello D'Amato & Riccardo Martina, 2003. "Tax Evasion and Corruption in Tax Administration," Public Economics 0310001, EconWPA.
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Cited by:
  1. 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.

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