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Why is Corruption So Much More Taxing Than Tax? Arbitrariness Kills

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Shang-Jin Wei

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Abstract

This paper examines the effect of corruption-induced uncertainty on foreign direct" investment. The measure of uncertainty is constructed based on unpublished individual survey" responses on levels of corruption in host countries. The result is striking. The effect is negative statistically significant and quantitatively large. An increase in the uncertainty level from that of" Singapore to that of Mexico, at the average level of corruption in the sample raising the tax rate on multinational firms by 32 percentage points. Hence (uncertainty) effect can and does have first-order importance.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6255.

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Date of creation: Nov 1997
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Handle: RePEc:nbr:nberwo:6255

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Find related papers by JEL classification:
F20 - International Economics - - International Factor Movements and International Business - - - General
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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  1. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June. [Downloadable!] (restricted)
  2. Jonathan Eaton & Akiko Tamura, 1996. "Japanese and U.S. Exports and Investment as Conduits of Growth," NBER Working Papers 5457, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Andrei Shleifer & Robert W. Vishny, 1993. "Corruption," NBER Working Papers 4372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November. [Downloadable!] (restricted)
  6. Rose-Ackerman, Susan, 1975. "The economics of corruption," Journal of Public Economics, Elsevier, vol. 4(2), pages 187-203, February. [Downloadable!] (restricted)
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