Economics at your fingertips  

Bribes vs. Taxes: Market Structure and Incentives

Francesco Amodio (), Jieun Choi, Giacomo De Giorgi () and Aminur Rahman ()

Working Papers from eSocialSciences

Abstract: Firms in developing countries often avoid paying taxes by making informal payments to tax officials. These bribes may raise the cost of operating a business, and the price charged to consumers. To decrease these costs, the author has designed a feedback incentive scheme for business tax inspectors that reward them according to the anonymous evaluation submitted by inspected firms. It shows theoretically that feedback incentives decrease the equilibrium bribe amount, but make firms with more inelastic demand more attractive for inspectors. A tilted scheme that attaches higher weights to the evaluation of smaller firms limits the scope for targeting and decreases the bribe amount to a lesser extent. The paper evaluates both schemes in a field experiment in the Kyrgyz Republic and find evidence that is consistent with the model predictions. By decreasing bribes, our intervention reduces the average cost for firms and the price they charge to consumers. Since fewer firms substitute bribes for taxes, tax revenues increase. Our study highlights the role of firm heterogeneity and market structure in shaping the relationship between firms and tax inspectors, and provides clear evidence of pass-through of bribes to consumers.

Keywords: eSS; : business tax; incentives; market structure; demand elasticity; bribes; bribes to consumer; Kyrgyz Republic; developing countries; informal payment; tax officials; business; prices; incentive scheme; business tax inspector; model predictions. (search for similar items in EconPapers)
Date: 2018-09
Note: Institutional Papers
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... AId=12919&fref=repec

Related works:
Working Paper: Bribes vs. Taxes: Market Structure and Incentives (2018) Downloads
Working Paper: Bribes vs. Taxes: Market Structure and Incentives (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Papers from eSocialSciences
Bibliographic data for series maintained by Padma Prakash ().

Page updated 2019-04-19
Handle: RePEc:ess:wpaper:id:12919