Taxes and bribery: The role of monitoring, bargaining power and red tape

Bernard Gauthier () and Jonathan Goyette
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Bernard Gauthier: Institut d'économie appliquée, HEC Montréal

Cahiers de recherche from Departement d'économique de l'École de gestion à l'Université de Sherbrooke

Abstract: 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%.

Keywords: Corruption; Tax evasion; Tax administration; Red Tape; Bargaining Power (search for similar items in EconPapers)
JEL-codes: D73 D82 H21 H26 H32 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-04
New Economics Papers: this item is included in nep-acc, nep-iue and nep-pbe
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