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Anticorruption reforms, tax evasion, and the role of harassment

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  • Dyuti S. Banerjee
  • Samarth Vaidya

Abstract

We examine the impact of anticorruption reforms on tax evasion when corruption and potentially harassment are endemic among tax auditors. We find that the threat of harassment may counterintuitively boost the impact of such anticorruption reforms on tax evasion and also eliminate corruption. Specifically, a moderate anticorruption policy can discontinuously reduce tax evasion to a level even below that under no corruption. Further strengthening of such policy can nonetheless prove counterproductive and increase tax evasion. On the contrary, in the absence of harassment, a moderate anticorruption reform induces higher tax evasion and sustenance of bribery. In this case, only a large reform can reduce tax evasion and eliminate corruption.

Suggested Citation

  • Dyuti S. Banerjee & Samarth Vaidya, 2019. "Anticorruption reforms, tax evasion, and the role of harassment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(1), pages 62-80, February.
  • Handle: RePEc:bla:jpbect:v:21:y:2019:i:1:p:62-80
    DOI: 10.1111/jpet.12304
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    Cited by:

    1. Benkraiem, Ramzi & Uyar, Ali & Kilic, Merve & Schneider, Friedrich, 2021. "Ethical behavior, auditing strength, and tax evasion: A worldwide perspective," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 43(C).
    2. Lin Hu & Mandar Oak, 2023. "Can asymmetric punishment deter endogenous bribery," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 3-21, January.
    3. Gaetano Carmeci & Luciano Mauro & Fabio Privileggi, 2021. "Growth maximizing government size, social capital, and corruption," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(3), pages 438-461, June.
    4. Sebastian Kot & Róbert Štefko & Ján Dobrovič & Rastislav Rajnoha & Jan Váchal, 2019. "The Main Performance and Effectiveness Factors of Sustainable Financial Administration Reform Using Multidimensional Statistical Tools," Sustainability, MDPI, vol. 11(13), pages 1-21, June.
    5. Nhan Buu Phan & Shino Takayama, 2023. "A Model of Corruption and Heterogeneous Productivity: A Theoretical Approach," Discussion Papers Series 660, School of Economics, University of Queensland, Australia.

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