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Corruption, tax revenue and growth: a non linear relationship?

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  • Raffaella Coppier

    (University of Macerata)

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    Abstract

    � 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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    Bibliographic 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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    Date of creation: Oct 2005
    Date of revision: Oct 2008
    Handle: RePEc:mcr:wpdief:wpaper00027

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    1. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    2. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-41, January.
    3. Polinsky, A. Mitchell & Shavell, Steven, 2001. "Corruption and optimal law enforcement," Journal of Public Economics, Elsevier, vol. 81(1), pages 1-24, July.
    4. Chander, Parkash & Wilde, Louis, 1992. "Corruption in tax administration," Journal of Public Economics, Elsevier, vol. 49(3), pages 333-349, December.
    5. Antonio Acconcia & Marcello D'Amato & Riccardo Martina, 2003. "Tax Evasion and Corruption in Tax Administration," Public Economics 0310001, EconWPA.
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