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Are corruption and taxation really harmful to growth? - firm-level evidence

Author

Listed:
  • Fisman, Raymond
  • Svensson, Jakob

Abstract

Exploiting a unique data set containing information about the estimated bribe payments of Ugandan firms, the authors study the relationship between bribe payments, taxes, and firm growth in Uganda for the period 1995-97. Using industry-location averages to circumvent the potential problem of endogeneity, and to deal with issues of measurement error, they find that both the rate of taxation, and the rate of bribery are negatively correlated with firm growth. For the full data set, a one percentage point increase in the bribery rate is associated with three percentage point reduction in firm growth - an effect about three times that of taxation. Moreover, after excluding outliers, the authors find that bribery has a much greater negative impact on growth, and taxation a considerably smaller one. This provides some validation of firm-level theories of corruption, which posit that corruption retards development, even more than taxation does.

Suggested Citation

  • Fisman, Raymond & Svensson, Jakob, 2000. "Are corruption and taxation really harmful to growth? - firm-level evidence," Policy Research Working Paper Series 2485, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2485
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    References listed on IDEAS

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    More about this item

    Keywords

    Governance Indicators; Health Monitoring&Evaluation; Corruption&Anitcorruption Law; Public Sector Corruption&Anticorruption Measures; Achieving Shared Growth;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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