Effects of Institutional History and Leniency on Collusive Corruption and Tax Evasion

Abstract

We investigate the effects of an institutional mechanism that incentivizes taxpayers to blow the whistle on collusive corruption and tax compliance. We explore this through a formal leniency program. In our experiment, we nest collusive corruption within a tax evasion framework. We not only study the effect of the presence of such a mechanism on behavior, but also the dynamic effect caused by the introduction and the removal of leniency. We find that in the presence of a leniency mechanism, subjects collude and accept bribes less often while paying more taxes, but there is no increase in bribe offers. Our results show that the introduction of the opportunity to blow the whistle decreases the collusion and bribe acceptance rate, and increases the collected tax yield. It also does not encourage bribe offers. In contrast, the removal of the institutional mechanism does not induce negative effects, suggesting a positive spillover effect of leniency that persists even after the mechanism has been removed.

Public sector reforms and their impact on the level of corruption: A systematic review

“…Although leniency policies, aimed at encouraging reporting of corrupt practices by guaranteeing impunity to officials or citizens, should discourage demanding bribes in anticipation of the whistleblowing, results of existing studies do not unequivocally support such assumption. In some cases, leniency policies reduce collusive bribery (Bigoni et al, 2015;Buckenmaier et al, 2018) but at the cost of making bribery more profitable for bidders (Christofl et al 2017).…”

“…Five studies test the effect of policies guaranteeing impunity to officials or citizens who report corrupt practices (principal witness/leniency treatment/asymmetric liability) on collusive bribery (Abbink & Wu, 2017; Bigoni et al, 2015; Engel et al, 2016; Christofl et al 2017; Buckenmaier et al, 2018), and extortionary bribery (Abbink et al, 2014).…”

“…Although leniency policies, aimed at encouraging reporting of corrupt practices by guaranteeing impunity to officials or citizens, should discourage demanding bribes in anticipation of the whistleblowing, results of existing studies do not unequivocally support such assumption. In some cases, leniency policies reduce collusive bribery (Bigoni et al, 2015; Buckenmaier et al, 2018) but at the cost of making bribery more profitable for bidders (Christofl et al 2017). According to one study, leniency does not show a significant impact on collusive bribery alone but it looks promising when associated with policies that limit agent's and client's exposure to one another, such as staff rotation (Abbink & Wu, 2017).…”

Curbing Tax Evasion through Taxpayer Identification Number (TIN) in Niger State, Nigeria

“…An analysis of tax data from the NTS over the years 2006-2012 revealed that the CRS intervention significantly reduced tax evasion and was cost effective. Buckenmaier et al (2018) becomes the third study in this review exploring tax evasion in Italy (the other two being Chiarini et al, 2013;Casaburi & Troiano, 2015). This particular study conducted an experiment to determine whether or not the introduction of incentives for whistle blowing against tax evaders would reduce incidences of tax evasion.…”

“…Like Buckenmaier et al (2018) a year earlier, Masclet et al (2019) conducted an experiment to determine the efficacy of whistle blowing as a strategy for tackling tax evasion. Using 432 subjects from Canada and France, the study conducted an experiment whereby participants had the opportunity to report other participants who attempted to evade taxes in the tax game utilized in the experiment.…”