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Why is Corruption So Much More Taxing Than Tax? Arbitrariness Kills

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  • Shang-Jin Wei

Abstract

This paper examines the effect of corruption-induced uncertainty on foreign direct" investment. The measure of uncertainty is constructed based on unpublished individual survey" responses on levels of corruption in host countries. The result is striking. The effect is negative statistically significant and quantitatively large. An increase in the uncertainty level from that of" Singapore to that of Mexico, at the average level of corruption in the sample raising the tax rate on multinational firms by 32 percentage points. Hence (uncertainty) effect can and does have first-order importance.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:6255
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    1. Takatoshi Ito & Anne O. Krueger, 1996. "Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5," NBER Books, National Bureau of Economic Research, Inc, number ito_96-1.
    2. Jonathan Eaton & Akiko Tamura, 1996. "Japanese and U.S. Exports and Investment as Conduits of Growth," NBER Chapters,in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 51-75 National Bureau of Economic Research, Inc.
    3. Rose-Ackerman, Susan, 1975. "The economics of corruption," Journal of Public Economics, Elsevier, vol. 4(2), pages 187-203, February.
    4. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
    5. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    6. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 995-1025.
    7. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
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    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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