 Corruption as an Occupational Choice: Endogenous Corruption and Tax PolicyGareth D. Myles and Hana Yousefi Southern Economic Journal, 2020, vol. 86, issue 4, 1446-1474 Abstract: Corruption is endemic in many countries, and empirical studies have demonstrated how it impacts on macroeconomic indicators. Theoretical studies have generally assumed an exogenously given proportion of the population are corrupt or that the public sector is fixed in size; far fewer explore how corruption emerges endogenously. We endogenize corruption as an occupational choice. Workers choose private or public employment; public employees can be honest or corrupt. Corruption is subject to a social sanction that results in a loss of self‐esteem. Those who care little about the social sanction choose to be corrupt. When a firm meets a corrupt public employee it pays a bribe to secure a reduction in the tax rate. The economy has two self‐sustaining equilibria with different levels of corruption. Corruption reduces tax revenue and the tax rate that maximizes revenue. An increase in the social sanction reduces corruption but also reduces tax revenues if the economy is in a high‐corruption equilibrium. Paying a wage premium to public sector workers can result in all public sector workers being corrupt. Public sector audits to detect corrupt workers always reduce corruption but can only increase welfare when they are cheap to conduct and the economy is in a low‐corruption equilibrium. Date: 2020 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:86:y:2020:i:4:p:1446-1474 Access Statistics for this article More articles in Southern Economic Journal from John Wiley & Sons |
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