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Can tax simplification help lower tax corruption?

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  • Rajul Awasthi
  • Nihal Bayraktar

Abstract

This paper seeks to find empirical evidence of a link between tax simplification and corruption in tax administration. It attempts to do this by first defining “tax simplicity” as a measurable variable, and exploring empirical relationships between simpler tax regimes and corruption in tax administrations. Corruption in tax administration is calculated by using data series from the World Bank’s Enterprise Survey Database. The focus is on business taxes. 104 countries from different income groups and regions of the world are included in this study. The time period is 2002–2012. The empirical findings support the existence of a significant link between the measure of tax corruption and tax simplicity, so, a less complex tax system is shown to be associated with lower corruption in tax administration. It is predicted that the combined effect of a 10 % reduction in both the number of payments and the time to comply with tax requirements can lower tax corruption by 9.64 %. Some interesting regional differences are observed in the results. While the impact on tax simplification on tax corruption is expected to be the highest in the LAC and SSA regions, the weakest economic significance is observed in the SASIA and EAP regions. Similarly, the income level of countries plays an important role in determining the impact of tax simplification on tax corruption; specifically, the link is stronger for lower income level countries. The positive link between tax simplicity and lower tax corruption has useful policy implications. Copyright Eurasia Business and Economics Society 2015

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  • Rajul Awasthi & Nihal Bayraktar, 2015. "Can tax simplification help lower tax corruption?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 297-330, December.
  • Handle: RePEc:spr:eurase:v:5:y:2015:i:2:p:297-330
    DOI: 10.1007/s40822-015-0014-9
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    More about this item

    Keywords

    Taxes; Tax corruption; Tax simplification; Time to comply taxes; Number of tax payments; H2; D73;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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