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Corruption and Tax Evasion with Competitive Bribes

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In this paper we consider a simple economy where self interested taxpayers may have incentives to evade taxes and to escape sanctions, by bribing public officials in charge for tax collection. The level of monitoring and the level of corruption are endogenously determined assuming that the price for corruption (bribe) sets at a value where expected rents in the public sector are completely dissipated in monitoring costs due to competition among public officials. In the proposed framework, larger fines for evasion will increase tax compliance with ambiguous effects on corruption while larger fine for corruption reduce corruption at the cost of reducing tax compliance. Interestingly, a utilitarian legislator will want to set maximal penalties. Intuitively, preventing corruption through fines is valuable to the planner since it reduces the amount of rent dissipation in the public sector at the cost of decreasing deterrence for the underlying offence (evasion). Finally the shadow value of deterrence is such that the level of public good provided in the economy is smaller than its first best.

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  • Antonio Acconcia & Marcello D'Amato & Riccardo Martina, 2003. "Corruption and Tax Evasion with Competitive Bribes," CSEF Working Papers 112, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:112
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    Cited by:

    1. Anwar Shah, 2014. "Decentralized Provision of Public Infrastructure and Corruption," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1418, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    2. Antonio Acconcia, 2006. "Endogenous Corruption and Tax Evasion in a Dynamic Model," CSEF Working Papers 154, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Nov 2006.
    3. Alm, James & Martinez-Vazquez, Jorge & McClellan, Chandler, 2016. "Corruption and firm tax evasion," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 146-163.
    4. Anwar Shah, 2006. "Corruption and Decentralized Public Governance," Chapters,in: Handbook of Fiscal Federalism, chapter 19 Edward Elgar Publishing.
    5. Djumashev, Ratbek, 2006. "Corrupt Bureaucracy and Growth," MPRA Paper 2082, University Library of Munich, Germany.
    6. Mtiraoui, Abderraouf, 2015. "La corruption entre l’aspect institutionnel économique et l’aspect social à travers la gouvernance
      [Corruption between economic institutional aspect and social aspect through governance]
      ," MPRA Paper 61122, University Library of Munich, Germany.
    7. Ratbek Dzhumashev, 2006. "Public Goods, Corruption And Growth???," Monash Economics Working Papers 15/06, Monash University, Department of Economics.

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