Working Paper 344 - Anti-Tax Evasion, Anti-Corruption and Public Good Provision

We designed a public good laboratory experiment in order to identify the causal relationships between tax evasion and corruption and query whether deterring one of these behaviours may have desirable spillover effects on the other. To do so, we analyse theeffects of deterrence when the target is only tax evasion, only corruption, or both tax evasion and corruption, our “Big bang” treatment. Consistent with theoretical predictions, we find that i) the possibility of embezzling tax revenue increases the likelihood and amount of tax evaded; ii) fighting corruption has a significant negative impact on tax evasion, suggesting a crossover effect of deterrence from anti-corruption to anti-tax evasion; iii) penalizing tax evasion does not have a significant impact on embezzlement; indicating that the crossover effect is unidirectional. Interestingly, all three deterrence treatments increase public good provision compared to the baseline treatment, but with a clear ranking: the Big bang approach is the most effective, followed by Anti-corruption, then Anti-evasion. Therefore, faced with two “evils” regarding public good provision, allocating more resource to fighting corruption may be the better policy choice.