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Do Government Wage Cuts Close Budget Deficits? Costs of Corruption

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Author Info

  • Nadeem Ul Haque

    (International Monetary Fund)

  • Ratna Sahay

    (International Monetary Fund)

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    Abstract

    Real wage declines have been common in the public sector in many countries over substantial periods of time. In several cases, such wage reductions have coincided with declines in the efficiency of the public sector. In a simple analytical framework, it is shown that higher wage levels alter the incentive-compatible equilibrium by attracting relatively skilled human capital to the government sector, which raises the quality of public output--tax revenue collection in this paper. Increases in wages should complement appropriate monitoring and penalty rates for effective tax administration; prescriptions of raising the statutory tax rate alone, however, may not increase revenue collection.

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

    Volume (Year): 43 (1996)
    Issue (Month): 4 (December)
    Pages: 754-778

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    Handle: RePEc:pal:imfstp:v:43:y:1996:i:4:p:754-778

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    Cited by:
    1. Anand V. Swamy & Stephen Knack & Young Lee & Omar Azfar, 2000. "Gender and Corruption," Department of Economics Working Papers 2000-10, Department of Economics, Williams College.
    2. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Bureaucratic corruption and the rate of temptation: do wages in the civil service affect corruption, and by how much?," Journal of Development Economics, Elsevier, vol. 65(2), pages 307-331, August.
    3. Wadho, Waqar Ahmed, 2009. "Steal If You Need. Capitulation Wages with Endogenous Monitoring," MPRA Paper 37839, University Library of Munich, Germany.
    4. Nadeem Ul Haque, 2007. "Why Civil Service Reforms Do Not Work," Labor Economics Working Papers 22192, East Asian Bureau of Economic Research.
    5. Chand, Sheetal K. & Moene, Karl O., 1999. "Controlling Fiscal Corruption," World Development, Elsevier, vol. 27(7), pages 1129-1140, July.
    6. Hindriks, Jean & Keen, Michael & Muthoo, Abhinay, 1999. "Corruption, extortion and evasion," Journal of Public Economics, Elsevier, vol. 74(3), pages 395-430, December.
    7. Ciocchini, Francisco & Durbin, Erik & Ng, David T.C., 2003. "Does Corruption Increase Emerging Market Bond Spreads?," Working Papers 127179, Cornell University, Department of Applied Economics and Management.
    8. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    9. Roy Cerqueti & Raffaella Coppier, 2009. "Economic growth, corruption and tax evasion," Working Papers 58-2009, Macerata University, Department of Finance and Economic Sciences, revised Jan 2010.
    10. Argandoña, Antonio, 2004. "Corruption and companies: The case of facilitating payments," IESE Research Papers D/539, IESE Business School.
    11. Fadi KANSO, 2007. "Wages and Sanctions against Hierarchical Corruption," CAE Working Papers 51, Aix-Marseille Université, CERGAM.
    12. Van-Ha Le & Jakob de Haan & Erik Dietzenbacher, 2013. "Do Higher Government Wages Reduce Corruption? Evidence Based on a Novel Dataset," CESifo Working Paper Series 4254, CESifo Group Munich.
    13. Muhamamd Mudasar Ghafoor, 2012. "Role of Demographic Characteristics on Job Satisfaction," Far East Journal of Psychology and Business, Far East Research Centre, vol. 6(3), pages 30-45, January.

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