Corruption, taxes and compliance

Abstract

This article revisits the effects of corruption on the state’s capacity to raise revenue, building on the existing empirical literature using new and more disaggregated data. We use a comprehensive dataset for 147 countries spanning 1995-2014, compiled by the International Monetary Fund. The study finds that—consistent with the existing literature—corruption is negatively associated with overall tax revenue, and most of its components. This relationship is predominantly influenced by the way corruption interacts with tax compliance. The establishment of large taxpayer offices within revenue administrations improves tax compliance by dampening the perception of corruption, thereby boosting revenue.
Citation

Baum, A., Gupta, S., Kimani, E., and Tapsoba, S.J. (2017) Corruption, taxes and compliance, eJournal of Tax Research, Volume 15 (2), Special Edition: Tax and Corruption, pp.190-216, December 2017