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Corruption and Tax Evasion with Competitive Bribes

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Author Info
Antonio Acconcia () (Università di Napoli Federico II and CSEF, Università di Salerno)
Marcello D'Amato () (Dises, Celpe, and CSEF, Università di Salerno)
Riccardo Martina () (Università di Napoli Federico II and CSEF, Università di Salerno)

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Abstract

In this paper we consider a simple economy where self interested taxpayers may have incentives to evade taxes and to escape sanctions, by bribing public officials in charge for tax collection. The level of monitoring and the level of corruption are endogenously determined assuming that the price for corruption (bribe) sets at a value where expected rents in the public sector are completely dissipated in monitoring costs due to competition among public officials. In the proposed framework, larger fines for evasion will increase tax compliance with ambiguous effects on corruption while larger fine for corruption reduce corruption at the cost of reducing tax compliance. Interestingly, a utilitarian legislator will want to set maximal penalties. Intuitively, preventing corruption through fines is valuable to the planner since it reduces the amount of rent dissipation in the public sector at the cost of decreasing deterrence for the underlying offence (evasion). Finally the shadow value of deterrence is such that the level of public good provided in the economy is smaller than its first best.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 112.

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Date of creation: 21 Dec 2003
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Handle: RePEc:sef:csefwp:112

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  1. A. Mitchell Polinsky & Steven Shavell, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March. [Downloadable!] (restricted)
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  2. Ehrlich, Isaac, 1996. "Crime, Punishment, and the Market for Offenses," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 43-67, Winter. [Downloadable!] (restricted)
  3. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September. [Downloadable!] (restricted)
  4. Mookherjee, Dilip & Png, I P L, 1992. "Monitoring vis-a-vis Investigation in Enforcement of Law," American Economic Review, American Economic Association, vol. 82(3), pages 556-65, June. [Downloadable!] (restricted)
  5. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, vol. 105(428), pages 145-59, January. [Downloadable!] (restricted)
  6. Saha, Atanu & Poole, Graham, 2000. "The economics of crime and punishment: An analysis of optimal penalty," Economics Letters, Elsevier, vol. 68(2), pages 191-196, August. [Downloadable!] (restricted)
  7. Nahum D. Melumad & Dilip Mookherjee, 1989. "Delegation as Commitment: The Case of Income Tax Audits," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 139-163, Summer. [Downloadable!] (restricted)
  8. Bar-Gill, O. & Harel, A., 2000. "Crime Rates and Expected Sanctions: The Economics of Deterrence Revisited," Papers 00-14, Tel Aviv.
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  9. 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. [Downloadable!] (restricted)
  10. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June. [Downloadable!] (restricted)
  11. Stigler, George J, 1970. "The Optimum Enforcement of Laws," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 526-36, May-June. [Downloadable!] (restricted)
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  12. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-91, December. [Downloadable!] (restricted)
  13. Garoupa, Nuno, 1997. " The Theory of Optimal Law Enforcement," Journal of Economic Surveys, Blackwell Publishing, vol. 11(3), pages 267-95, September. [Downloadable!] (restricted)
  14. Sanyal, Amal & Gang, Ira N & Goswami, Omkar, 2000. " Corruption, Tax Evasion and the Laffer Curve," Public Choice, Springer, vol. 105(1-2), pages 61-78, October. [Downloadable!] (restricted)
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  15. repec:att:wimass:19898 is not listed on IDEAS
  16. Polinsky, A. Mitchell & Shavell, Steven, 2001. "Corruption and optimal law enforcement," Journal of Public Economics, Elsevier, vol. 81(1), pages 1-24, July. [Downloadable!] (restricted)
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  17. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November. [Downloadable!] (restricted)
  18. Hindriks, J. & Keen, M. & Muthoo, A., 1996. "Corruption, Extortion and Evasion," Papers 179, Notre-Dame de la Paix, Sciences Economiques et Sociales.
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  19. Chander, Parkash & Wilde, Louis, 1992. "Corruption in tax administration," Journal of Public Economics, Elsevier, vol. 49(3), pages 333-349, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Djumashev, Ratbek, 2006. "Corrupt Bureaucracy and Growth," MPRA Paper 2082, University Library of Munich, Germany. [Downloadable!]
  2. Shah, Anwar, 2006. "Corruption and decentralized public governance," Policy Research Working Paper Series 3824, The World Bank. [Downloadable!]
  3. Antonio Acconcia, 2006. "Endogenous Corruption and Tax Evasion in a Dynamic Model," CSEF Working Papers 154, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Nov 2006. [Downloadable!]
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