In this paper we explore tax revenue in a regime of widespread corruption
in a static and dynamic framework. We prove that the relationship between
the tax rate and tax collection is not linear. In a static context, this may
bring about a Laffer, like behavior of overall tax revenue; a higher tax rate,
via higher corruption, may reduce revenues. In a dynamic context, this rela-
tionship is inverted: tax revenues are high for low and high tax rates, while
low for intermediate tax rates. Furthermore we prove that the relationship
between the tax rate and growth is not linear: at low levels of the tax rate,
any increase in it leads to a decreasing growth rate; after a certain threshold,
increases in the tax rate lead to an increase in economic growth.
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Publisher Info
Paper provided by Macerata University, Department of Finance and Economic Sciences in its series Working Papers with number
27-2005.
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