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Fiscal corruption: A vice or a virtue?

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  • Odd-Helge Fjeldstad
  • Bertil Tungodden

Abstract

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.

Suggested Citation

  • Odd-Helge Fjeldstad & Bertil Tungodden, 2001. "Fiscal corruption: A vice or a virtue?," CMI Working Papers WP 2001:13, CMI (Chr. Michelsen Institute), Bergen, Norway.
  • Handle: RePEc:chm:wpaper:wp2001-13
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    1. repec:spr:annopr:v:243:y:2016:i:1:d:10.1007_s10479-014-1567-9 is not listed on IDEAS
    2. Christian von Soest, 2006. "Measuring the Capability to Raise Revenue Process and Output Dimensions and Their Application to the Zambia Revenue Authority," GIGA Working Paper Series 35, GIGA German Institute of Global and Area Studies.
    3. Odd-Helge Fjeldstad, 2002. "Fighting fiscal corruption: The case of the Tanzania Revenue Authority," CMI Working Papers WP 2002:3, CMI (Chr. Michelsen Institute), Bergen, Norway.
    4. repec:eee:spacre:v:15:y:2012:i:1:p:59-90 is not listed on IDEAS
    5. World Bank, 2005. "Local Government Taxation Reform in Tanzania : A Poverty and Social Impact Analysis (PSIA), Report on Economic and Sector Work," World Bank Other Operational Studies 8816, The World Bank.
    6. Odd-Helge Fjeldstad, 2005. "Corruption in Tax Administration: Lessons from Institutional Reforms in Uganda," CMI Working Papers WP 2005: 10, CMI (Chr. Michelsen Institute), Bergen, Norway.
    7. Mauricio Vargas, 2015. "Informality in Paraguay; Macro-Micro Evidence and Policy Implications," IMF Working Papers 15/245, International Monetary Fund.
    8. Mihai Mutascu, 2014. "Influence of climate conditions on tax revenues," Contemporary Economics, University of Finance and Management in Warsaw, vol. 8(3), September.
    9. Everett, Jeff & Neu, Dean & Rahaman, Abu Shiraz, 2007. "Accounting and the global fight against corruption," Accounting, Organizations and Society, Elsevier, vol. 32(6), pages 513-542, August.
    10. Bergh, Andreas & Mirkina, Irina & Nilsson, Therese, 2013. "More Open – Better Governed? Evidence from High- and Low-income Countries," Working Paper Series 997, Research Institute of Industrial Economics.
    11. Gulam Hassan, Mohamed Aslam & Tan, Yee Shin, 2012. "Political Economy of The Budgetary Process in Malaysia," MPRA Paper 37873, University Library of Munich, Germany.
    12. Dean Yang, 2008. "Integrity for Hire: An Analysis of a Widespread Customs Reform," Journal of Law and Economics, University of Chicago Press, vol. 51(1), pages 25-57, February.
    13. Roy Cerqueti & Raffaella Coppier, 2015. "Corruptibility and tax evasion," European Journal of Law and Economics, Springer, vol. 39(2), pages 355-373, April.
    14. Tahseen Ajaz & Eatzaz Ahmad, 2010. "The Effect of Corruption and Governance on Tax Revenues," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 405-417.
    15. Chand, Sheetal K. & Moene, Karl Ove & Mookherjee, Dilip, 2003. ""Fiscal Corruption: A Vice or a Virtue?"--A Comment," World Development, Elsevier, vol. 31(8), pages 1469-1472, August.
    16. Nguyen, Ngoc Anh & Doan, Quang Hung & Tran-Nam, Binh, 2017. "Tax corruption and private sector development in Vietnam," MPRA Paper 84300, University Library of Munich, Germany.
    17. Odd-Helge Fjeldstad, 2002. "The fight against corruption and the role of parliamentarians," CMI Working Papers WP 2002:6, CMI (Chr. Michelsen Institute), Bergen, Norway.
    18. Mihai Mutascu, 2012. "Taxation under media capture," Economics Bulletin, AccessEcon, vol. 32(4), pages 2752-2767.
    19. Dean Yang, 2005. "Integrity for Hire: An Analysis of a Widespread Program for Combating Customs Corruption," Working Papers 525, Research Seminar in International Economics, University of Michigan.
    20. Stephan Danninger & Annette J Kyobe & M. Cangiano, 2005. "The Political Economy of Revenue-Forecasting Experience From Low-Income Countries," IMF Working Papers 05/2, International Monetary Fund.
    21. repec:wbk:wbpubs:26685 is not listed on IDEAS
    22. James, Simon & Edwards, Alison, 2010. "An annotated bibliography of tax compliance and tax compliance costs," MPRA Paper 26106, University Library of Munich, Germany.
    23. Fjeldstad, Odd-Helge, 2013. "Taxation and Development : a Review of Donor Support to Strengthen Tax Systems in Developing Countries," WIDER Working Paper Series 010, World Institute for Development Economic Research (UNU-WIDER).

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