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Are corruption and taxation really harmful to growth? - firm-level evidence

Raymond Fisman and Jakob Svensson

No 2485, Policy Research Working Paper Series from The World Bank

Abstract: Exploiting a unique data set containing information about the estimated bribe payments of Ugandan firms, the authors study the relationship between bribe payments, taxes, and firm growth in Uganda for the period 1995-97. Using industry-location averages to circumvent the potential problem of endogeneity, and to deal with issues of measurement error, they find that both the rate of taxation, and the rate of bribery are negatively correlated with firm growth. For the full data set, a one percentage point increase in the bribery rate is associated with three percentage point reduction in firm growth - an effect about three times that of taxation. Moreover, after excluding outliers, the authors find that bribery has a much greater negative impact on growth, and taxation a considerably smaller one. This provides some validation of firm-level theories of corruption, which posit that corruption retards development, even more than taxation does.

Keywords: Governance Indicators; Health Monitoring&Evaluation; Corruption&Anitcorruption Law; Public Sector Corruption&Anticorruption Measures; Achieving Shared Growth (search for similar items in EconPapers)
Date: 2000-11-30
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Journal Article: Are corruption and taxation really harmful to growth? Firm level evidence (2007) Downloads
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