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Fiscal Corruption: A Vice or a Virtue?

Listed author(s):
  • Fjeldstad, Odd-Helge
  • Tungodden, Bertil

Recent literature on tax administration in poor countries suggests that inducing more fiscal corruption may contribute to reducing tax evasion and increasing tax revenues. But does such an intriguing paradox justify policies that stimulate corruption? Our answer is no, and this note puts forward three arguments to support our view. First, while corruption may raise revenues in the short run, in general the opposite will be the case in the longer run. Second, the instrumental value of reducing corruption goes far beyond its effects on tax evasion and tax revenues. Accepting corruption as a policy strategy to increase tax revenues may undermine values of democracy and good governance. Third, eliminating corruption should be considered an end in itself. Thus, contrary to recent suggestions on incentive reforms in tax administration, the reasonable starting point for policy debates in this area should still be that an increase in fiscal corruption is not an appropriate instrument to raising tax revenues. Sustained development cannot grow from an institutional framework that fosters corruption and extra-legal tax enforcement.

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Article provided by Elsevier in its journal World Development.

Volume (Year): 31 (2003)
Issue (Month): 8 (August)
Pages: 1459-1467

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Handle: RePEc:eee:wdevel:v:31:y:2003:i:8:p:1459-1467
Contact details of provider: Web page: http://www.elsevier.com/locate/worlddev

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  1. Ernst Fehr & Simon Gaechter, "undated". "Fairness and Retaliation: The Economics of Reciprocitys," IEW - Working Papers 040, Institute for Empirical Research in Economics - University of Zurich.
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  4. Jean-Jacques LAFFONT & Jean TIROLE, 1990. "The Politics of Government Decision-Making : a Theory of Regulatory Capture," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9004, Université de Lausanne, Faculté des HEC, DEEP.
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  7. Andvig, Jens Chr. & Moene, Karl Ove, 1990. "How corruption may corrupt," Journal of Economic Behavior & Organization, Elsevier, vol. 13(1), pages 63-76, January.
  8. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
  9. Fauvelle-Aymar, Christine, 1999. "The Political and Tax Capacity of Government in Developing Countries," Kyklos, Wiley Blackwell, vol. 52(3), pages 391-413.
  10. Alm, James & Bahl, Roy & Murray, Matthew N, 1991. "Tax Base Erosion in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 39(4), pages 849-872, July.
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  14. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-141, January.
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