Corruption, Tax Evasion and the Laffer Curve

Ira Gang, Amal Sanyal and Omkar Goswami ()
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Omkar Goswami: Indian Statistical Institute - Delhi Centre

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: We introduce bureaucratic corruption in a simple way and examine its effect on government revenue when policies change. We show that a rise in the tax rate can lead to a fall in net revenue--a Laffer curve result due to the proportion of auditors that are corrupt and enforcement costs. It may pay for the government to lower audit probabilities and induce cheating. If corruption is low enough, revenues garnered from capturing people cheating may exceed those from choosing an audit structure in which everyone declares their true income. We also examine a case in which corruption is endogenous.

Keywords: auditing; bureaucracy; corruption; laffer curve; tax evasion (search for similar items in EconPapers)
JEL-codes: D73 H26 O23 (search for similar items in EconPapers)
Date: 1998-07-23
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Corruption, Tax Evasion and the Laffer Curve (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:199604

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