Fiscal policy and corruption

Abstract

This paper develops a simple model of corruption between a tax inspector and a taxpayer in which inspectors' heterogeneity helps explain why it may be optimal for a revenue-maximizing government to tolerate corruption. In our model, tax inspectors could accept a bribe from a taxpayer for under-reporting his income or to avoid harassment in the form of red tape. The government's problem is to design a tax policy and the associated monitoring probability to enforce it. Raising tax rates increases enforcement costs as it increases bribery incentives, so it is optimal not to set tax rates at a too high level. The optimal tax policy includes an optimal supervision level required to reduce corruption, which in turns depends on tax collectors' capacity to impose red tape on taxpayers. When bureaucrats are heterogeneous in terms of their capacity to impose red tape costs, an intermediate detection probability might be appropriate efficiency-wise even if it means tolerating some level of corruption. Bureaucrats' heterogeneity as the likely source of observation of corruption in equilibrium is generic to various environments in which agents' delegated power is misused for private gains and various examples are discussed in the paper. We also show how a government could face lose-lose as well as win-win situations in the conduct of its revenue collection policies. JEL Classification D73 · H21 · H26 · H32

Mécanismes et instruments anticorruption : pistes de réflexion émergentes de la littérature

“…De plus, selon Banerjee, Mullainathan et Hanna (2012), l'approche par tâches permet de prendre en compte l'hétérogénéité entre les bureaucrates. En effet, Gauthier et Goyette (2015) démontrent que, dans un contexte où les bureaucrates diffèrent en termes de leur capacité à imposer des coûts bureaucratiques, un niveau de détection extrêmement élevé et très couteux est nécessaire pour enrayer complètement la corruption. dans la littérature 44 .…”

Bribes and Bureaucracy Size: The Strategy of Watering Down Corruption

“…This paper is also related to the more recent literature on governance and anticorruption measures. Gauthier and Goyette (2016) analyse a model in which tax inspectors are corruptible and can impose red‐tape or harassment costs on taxpayers. In their case, raising fiscal pressure increases bribery incentives, and this forces the government to choose between two policies with different tax rates and detection levels: the no‐corruption regime with low tax rate and high monitoring, and the flexible regime with high tax rate and low monitoring.…”