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The Role of Corruption Control in Moderating the Relationship Between Value Added Tax and Income Inequality

Author

Listed:
  • Mohd Zulkhairi Mustapha1

    (Department of Accounting, Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia,)

  • Eric H. Y. Koh

    (Department of Finance and Banking, Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia,)

  • Sok-Gee Chan

    (Department of Finance and Banking, Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia)

  • Zulkufly Ramly

    (Department of Finance, Kulliyah of Economics and Management Sciences, International Islamic University Malaysia, Kuala Lumpur, Malaysia.)

Abstract

This paper investigates the mediating role of the control of corruption on value added tax (VAT) and income inequality in the top 10 most corrupted countries. We employed quantile regression to capture the varying effects of income inequality. The results suggest that most corrupted countries with lower income inequality did not benefit from VAT, but they stand to gain if the income inequality is wide. VAT seems to improve the effectiveness of tax collection, which the government can allocate the higher tax revenues for social and economic programs to benefit poor people. Our finding also suggest the extent of control of corruption and the improved governance of tax collection via VAT in our sample that consists of countries with high level of corruption are not strong enough to reduce income inequality.

Suggested Citation

  • Mohd Zulkhairi Mustapha1 & Eric H. Y. Koh & Sok-Gee Chan & Zulkufly Ramly, 2017. "The Role of Corruption Control in Moderating the Relationship Between Value Added Tax and Income Inequality," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 7(4), pages 459-467.
    • Handle: RePEc:eco:journ1:2017-04-55
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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