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The Culture Of Corruption, Tax Evasion, And Economic Growth

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  • Maksym Ivanyna
  • Alexandros Moumouras
  • Peter Rangazas

Abstract

type="main" xml:id="ecin12228-abs-0001"> This study uses a dynamic general equilibrium model to quantify the effects of corruption and tax evasion on fiscal policy and economic growth. The model is calibrated to match estimates of tax evasion in developing countries. The calibrated model is able to generate reasonable predictions for net tax rates, the corruption associated with public investment projects, and the negative correlation between corruption and tax revenue. The presence of corruption and evasion is shown to have significant, but not large, negative effects on economic growth. The relatively moderate effects help explain the absence of a robust negative correlation between growth and corruption in cross-country data. The model also implies that cracking down on tax evasion before addressing corruption can be a bad idea and that higher wages for public officials can improve welfare. (JEL H3, O4)

Suggested Citation

  • Maksym Ivanyna & Alexandros Moumouras & Peter Rangazas, 2016. "The Culture Of Corruption, Tax Evasion, And Economic Growth," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 520-542, January.
    • Handle: RePEc:bla:ecinqu:v:54:y:2016:i:1:p:520-542
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    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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