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Effect of Corruption on Tax Revenues in the Middle East

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  • Patrick A. Imam
  • Davina F. Jacobs

Abstract

This study estimates the impact of corruption on the revenue-generating capacity of different tax categories in the Middle East. We find that the low revenue collection as a share of GDP there compared to other middle-income regions is due in part to corruption, and certain taxes are more affected than others. Taxes that require frequent interaction between the tax authority and individuals, such as taxes on international trade, seem to be more affected by corruption than most other types of taxation. This suggests that if governments need to raise more tax revenues in a way that minimizes distortions and maximizes social welfare, they should implement reforms that either reduce corruption or raise revenues from tax categories that are less susceptible to corruption. Possible reforms of the revenue system and administration are examined.

Suggested Citation

  • Patrick A. Imam & Davina F. Jacobs, 2007. "Effect of Corruption on Tax Revenues in the Middle East," IMF Working Papers 07/270, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/270
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    References listed on IDEAS

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    1. Axel Dreher & Thomas Herzfeld, 2005. "The Economic Costs of Corruption: A Survey and New Evidence," Public Economics 0506001, EconWPA.
    2. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    3. Anna Ivanova & Michael Keen & Alexander Klemm, 2005. "The Russian ‘flat tax’ reform," Economic Policy, CEPR;CES;MSH, vol. 20(43), pages 397-444, July.
    4. Vito Tanzi & Hamid R Davoodi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 97/139, International Monetary Fund.
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    6. repec:umd:umdeco:rodriguez9901 is not listed on IDEAS
    7. Shang-Jin Wei, 1997. "Why is Corruption So Much More Taxing Than Tax? Arbitrariness Kills," NBER Working Papers 6255, National Bureau of Economic Research, Inc.
    8. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
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    More about this item

    Keywords

    Corruption; Middle East; Governance; Revenue administration; Taxation; Tax systems; Taxes; Tax revenues; Tax administration; trade taxes; tax system;

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