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Taxes and bribery: The role of monitoring, bargaining power and red tape

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  • Bernard Gauthier

    ()
    (Institut d'économie appliquée, HEC Montréal)

  • Jonathan Goyette

    ()
    (Department of Economics and GRÉDI, Université de Sherbrooke)

Abstract

This paper investigates the negotiation over bribe and tax payments during the tax collection process in poor countries. We build a simple model where tax officials and firms bargain over bribes to let firms evade part of their taxes. Using a unique dataset on Ugandan firms we test the predictions of the model. We find significant and robust effects of effective tax payments, tax obligations, red tape costs and firm's bargaining power on bribe payments. Taking into account the endogenous relationship between taxes paid and bribes, we find a significant and negative relationship between these two variables. A policy that would increase incentives to pay taxes per employee by 7% could at the same time decrease the level of bribes per employee by at least 1%.

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Bibliographic Info

Paper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number 12-08.

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Length: 31 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:shr:wpaper:12-08

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Keywords: Corruption; Tax evasion; Tax administration; Red Tape; Bargaining Power;

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  1. Laszlo Goerke, 2008. "Bureaucratic corruption and profit tax evasion," Economics of Governance, Springer, vol. 9(2), pages 177-196, May.
  2. 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.
  3. Basu, Kaushik & Bhattacharya, Sudipto & Mishra, Ajit, 1992. "Notes on bribery and the control of corruption," Journal of Public Economics, Elsevier, vol. 48(3), pages 349-359, August.
  4. Chander, Parkash & Wilde, Louis, 1992. "Corruption in tax administration," Journal of Public Economics, Elsevier, vol. 49(3), pages 333-349, December.
  5. Gauthier, Bernard & Reinikka, Ritva, 2001. "Shifting tax burdens through exemptions and evasion - an empirical investigation of Uganda," Policy Research Working Paper Series 2735, The World Bank.
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