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Fiscal corruption: A vice or a virtue?

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

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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Paper provided by CMI (Chr. Michelsen Institute), Bergen, Norway in its series CMI Working Papers with number WP 2001:13.

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Length: 12 pages
Date of creation: 2001
Handle: RePEc:chm:wpaper:wp2001-13
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  1. Ernst Fehr & Simon Gächter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
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  11. Graetz, Michael J & Reinganum, Jennifer F & Wilde, Louis L, 1986. "The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(1), pages 1-32, Spring.
  12. Huther, Jeff & Shah, Anwar, 2000. "Anti-corruption policies and programs : a framework for evaluation," Policy Research Working Paper Series 2501, The World Bank.
  13. Fjeldstad, Odd-helge & Semboja, Joseph, 2001. "Why People Pay Taxes: The Case of the Development Levy in Tanzania," World Development, Elsevier, vol. 29(12), pages 2059-2074, December.
  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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