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Corruption, Harassment and Evasion in Tax Collection

Author

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  • Nitin Kumar

    (Indira Gandhi Institute of Development Research, Mumbai 400065, India)

Abstract

The phenomenon of tax evasion is a universal problem especially prevalent in transition economies. What is the compliance/evasion decision of the taxpayers in presence of corruptible inspector and revenue maximizing government? How does a corrupt regime affect the task of tax collection? What is the optimal audit scheme for the government? This paper studies the strategic interaction between taxpayer and inspector in a sequential game theoretic framework and finds that despite inspection there can be suboptimal collection of taxes in a corrupt regime because of harassment, bribery and the possibility of collusion between the inspector and the taxpayer. In a corrupt regime the cost of corruption has a regressive bias. Also, it is interesting to note that under such a setup the proportional evasion performed by the poorer section is more than that of the richer section.

Suggested Citation

  • Nitin Kumar, 2008. "Corruption, Harassment and Evasion in Tax Collection," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 43(1), pages 125-139, July.
    • Handle: RePEc:dse:indecr:v:43:y:2008:i:1:p:125-139
    as

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    More about this item

    Keywords

    Tax Evasion; Corruption; Harassment; Extortion;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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