Taxation and corruption: theory and firm-level evidence from Uganda
This article develops a simple framework to analyse the negotiation over bribe and tax payments during the tax collection process. We show that the larger the bribe a firm offers to a tax collector, the larger the tax rebate it gets. More particularly, we show that the negotiation over bribe and tax payments hinges on four other factors: firms' official liabilities, detection, firms' negotiation power and red tape costs imposed on firms. Some of the predictions from the theoretical model are tested using firm-level data from Uganda. We find that bribe and tax payments are inversely related, thereby supporting the hypothesis of a negotiation taking place between firms and tax collectors. In particular, a 1% point increase in average bribe payments per employee is associated with a 7% point reduction in average amount of tax payments per employee. Results are robust to various instruments dealing with the endogenous relationship between bribes and taxes.
Year of publication: |
2014
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Authors: | Gauthier, Bernard ; Goyette, Jonathan |
Published in: |
Applied Economics. - Taylor & Francis Journals, ISSN 0003-6846. - Vol. 46.2014, 23, p. 2755-2765
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Publisher: |
Taylor & Francis Journals |
Saved in:
Online Resource
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