Corruption, Tax Evasion and the Laffer Curve.

In a corrupt tax administration a rise in tax rate sets off complicated strategic moves by both taxpayers and administrators. It is shown that in some circumstances, this may bring about Laffer like behavior of overall tax revenue, i.e. a higher tax rate results in smaller net revenue for the government. Further, a more intense tax effort by increasing the number of returns audited may also reduce net revenues. Finally if tax and fine rates positively influence the level of corruption in the administration, these outcomes become more likely. Copyright 2000 by Kluwer Academic Publishers