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Taxes and bribery: The role of monitoring, bargaining power and red tape

Author

Listed:
  • Bernard Gauthier

    (Institut d'économie appliquée, HEC Montréal)

  • Jonathan Goyette

    (Department of Economics and GRÉDI, Université de Sherbrooke)

Abstract

This paper investigates the negotiation over bribe and tax payments during the tax collection process in poor countries. We build a simple model where tax officials and firms bargain over bribes to let firms evade part of their taxes. Using a unique dataset on Ugandan firms we test the predictions of the model. We find significant and robust effects of effective tax payments, tax obligations, red tape costs and firm's bargaining power on bribe payments. Taking into account the endogenous relationship between taxes paid and bribes, we find a significant and negative relationship between these two variables. A policy that would increase incentives to pay taxes per employee by 7% could at the same time decrease the level of bribes per employee by at least 1%.

Suggested Citation

  • Bernard Gauthier & Jonathan Goyette, 2012. "Taxes and bribery: The role of monitoring, bargaining power and red tape," Cahiers de recherche 12-08, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    • Handle: RePEc:shr:wpaper:12-08
    as

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    File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1208.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Corruption; Tax evasion; Tax administration; Red Tape; Bargaining Power;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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