Taxes and bribery: The role of monitoring, bargaining power and red tape
This paper investigates the negotiation over bribe and tax payments during the tax collection process in poor countries. We build a simple model where tax officials and firms bargain over bribes to let firms evade part of their taxes. Using a unique dataset on Ugandan firms we test the predictions of the model. We find significant and robust effects of effective tax payments, tax obligations, red tape costs and firm's bargaining power on bribe payments. Taking into account the endogenous relationship between taxes paid and bribes, we find a significant and negative relationship between these two variables. A policy that would increase incentives to pay taxes per employee by 7% could at the same time decrease the level of bribes per employee by at least 1%.
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- Chander, Parkash & Wilde, Louis, 1992. "Corruption in tax administration," Journal of Public Economics, Elsevier, vol. 49(3), pages 333-349, December.
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Departmental Working Papers
199604, Rutgers University, Department of Economics.
- Laszlo Goerke, 2006.
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CESifo Working Paper Series
1666, CESifo Group Munich.
- Gauthier, Bernard & Reinikka, Ritva, 2001.
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Policy Research Working Paper Series
2735, The World Bank.
- Bernard Gauthier & Ritva Reinikka, 2006. "Shifting Tax Burdens through Exemptions and Evasion: an Empirical Investigation of Uganda," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 15(3), pages 373-398, September.
- Basu, Kaushik & Bhattacharya, Sudipto & Mishra, Ajit, 1992. "Notes on bribery and the control of corruption," Journal of Public Economics, Elsevier, vol. 48(3), pages 349-359, August.
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