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Corruption, Tax Evasion and Social Values

Anastasia Litina () and Theodore Palivos

CREA Discussion Paper Series from Center for Research in Economic Analysis, University of Luxembourg

Abstract: We provide empirical support and a theoretical explanation for the vicious circle of political corruption and tax evasion in which countries often fall into. We address this issue in the context of a model with two distinct groups of agents: citizens and politicians. Citizens decide the fraction of their income for which they evade taxes. Politicians decide the fraction of the public budget that they speculate. We show that multiple self-fulfilling equilibria with different levels of corruption can emerge based on the existence of strategic complementarities, indicating that corruption may corrupt. Furthermore, we find that standard deterrence policies cannot elimi- nate multiplicity. Instead, we find that impose a strong moral cost on tax evaders and corrupt politicians can lead to a unique equilibirum.

Keywords: Corruption; Tax Evasion; Mutiple Equilibria; Stigma (search for similar items in EconPapers)
JEL-codes: D73 E62 H26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-iue, nep-pbe, nep-pol and nep-soc
Date: 2014
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Related works:
Journal Article: Corruption, tax evasion and social values (2016) Downloads
Working Paper: Corruption, Tax Evasion and Social Values (2014) Downloads
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Persistent link: http://EconPapers.repec.org/RePEc:luc:wpaper:14-10

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