The anti-corruption reform in the Tanzanian tax bureaucracy in the mid-1990s was apparently a short-lived success. In the wake of the reform, a number of "tax experts" established themselves in the market, many of them being laid off tax bureaucrats. We argue that middle-men can undermine the effect of an anti-corruption reform by reducing the uncertainty that firms face vis-à-vis a reformed tax bureaucracy, which in turn may encourage firms to pay bribes rather than taxes. Indeed, under some circumstances, middle-men can cause corruption to be higher after the reform than before the reform. Since the demand for middle-men may increase with the extent of the reform, we also demonstrate that a small reform may be more efficient in combatting corruption than a more radical reform.
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Paper provided by CMI (Chr. Michelsen Institute), Bergen, Norway in its series CMI Working Papers with number
WP 2005: 1.
Find related papers by JEL classification: H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
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