Corruption, tax revenue and growth: a non linear relationship?

� In this paper we explore tax revenue in a regime of widespread corruption in a static and dynamic framework. We prove that the relationship between the tax rate and tax collection is not linear. In a static context, this may bring about a Laffer, like behavior of overall tax revenue; a higher tax rate, via higher corruption, may reduce revenues. In a dynamic context, this rela- tionship is inverted: tax revenues are high for low and high tax rates, while low for intermediate tax rates. Furthermore we prove that the relationship between the tax rate and growth is not linear: at low levels of the tax rate, any increase in it leads to a decreasing growth rate; after a certain threshold, increases in the tax rate lead to an increase in economic growth.

Economic growth, corruption and tax evasion

In this paper, we explore tax revenues in a regime of widespread corruption in a growth model. We develop a Ramsey model of economic growth with rival but non-excludable public good which is financed by taxes which can be evaded via corrupt tax inspector. We prove that the relationship between the tax rate and tax collection, in a dynamic framework, is not unique, but is different depending on the relevance of the shame effect. We show that growth rates - both of income and of tax revenues - decrease, as the tax rate increases, for all types of shame effect countries but they differ in how the growth rate decreases as the tax rate increases: the rate of decrease is higher in low shame countries than in high shame countries.

Corruption and production: a policy analysis.

� This paper analyzes the relation existing between corruption, monitoring and output in an economy. By solving a dynamic game we prove that equilibrium output is a non-linear upper-hemicontinuous function (MP function) of the monitoring level implemented by the State on corruption, presenting 3 different equilibrium scenarios. According to our model, we analyze the optimal strategy depending on the policy objective of the State and we prove that if the State is budget constrained the optimal policy can lead the economy to an equilibrium with widespread corruption and maximum production.Policy analysis,Equilibrium production,Corruption,Dynamic game

Do “Clean Hands†Ensure Healthy Growth? Theory and Practice in the Battle Against Corruption

This paper analyzes the existing relation between corruption and economic growth and examines the possible outcome of a reform implemented by the State to weed out or reduce corruption. It will be stressed that the reform against corruption tends, if not deemed by the operators to last in time, to curb most productive investments and therefore involves a time in which less corruption is paradoxically associated with less economic growth. This model is supported by econometric analysis of the Italian case. Italy has arguably been plagued by corruption. In the late 80s and early 90s several scandals that erupted quickly led to well-known inquiries (under the name of Clean Hands) and were followed (temporarily) by the an increased monitoring to prevent such practices. A dynamic panel data approach to economic growth based on data of 20 Italian regions allows to estimate a non-linear effect of corruption on economic growth.

Corruption, tax revenue and growth: a non linear relationship?

In this paper we explore tax revenue in a regime of widespread corruption in a static and dynamic framework. We prove that the relationship between tax rate and tax collection is not linear. In a static context, this may bring about a Laffer–like behavior of overall tax revenue. A higher tax rate, via higher corruption, may reduce revenues. In a dynamic context, this relationship is inverted: tax revenues are high for low and high tax rates, while low for intermediate tax rates. Furthermore we prove that the relationship between the tax rate and growth is not linear

Corruption, growth and ethnolinguistic fractionalization: a theoretical model

This paper analyzes the existing relationship between ethnolinguistic fractionalization, corruption and the growth rate of a country. We provide a simple theoretical model. We show that a non-linear relationship between fractionalization and corruption exists: corruption is high in homogeneous or very fragmented countries, but low where fractionalization is intermediate. In fact, when ethnic diversity is intermediate, constituencies act as a checkand balance device to limit ethnically-based corruption. Consequently, the relationship between fractionalization and growth rate is also non-linear: growth is high in the�middle range of ethnic diversity, low in homogeneous or very fragmented countries.

A game for exploring political and bureaucratic corruption

This article deals with the relationship between bureaucratic corruption and political corruption from the perspective of the industrial structure of a country. In so doing, we discuss whether political corruption and bureaucratic corruption can coexist. For this purpose, a suitable theoretical game model with imperfect information is constructed and solved.We demonstrate that the size of capital of a specific firm influences the decision of such firm to bribe the bureaucrat or lobby the government. Therefore, political and bureaucratic corruption are substitutes at the level of the firm because they depend on the capital of the firm, but they can coexist at a macro level. Some numerical experiments validate the theoretical model

Do "Clean Hands" Ensure Healthy Growth? Theory and Practice in the Battle Against Corruption

This paper analyzes the existing relationship between economic growth and the monitoring of corruption and examines the possible outcome of the implementation of a State reform in order to weed out corruption. Growth is always higher when monitoring is high and therefore corruption eradicated. But growth declines when monitoring against corruption is not too high, say intermediate, so much that it makes an equilibrium with corruption and little monitoring a more growth-enhancing solution. It is also stressed that when reforms to combat corruption appear to be implausible, they tend to curb most productive investments. The model is estimated using a dynamic panel data approach for Italy. Italy has been plagued by corruption and in the late 80s and early 90s several scandals erupted which led to the well-known "Clean Hands" (Mani pulite) inquiries. Empirical results support the theoretical model.Corruption, growth, reform, panel data

Tax revenues, fiscal corruption and "shame" costs

In this paper we explore tax revenues in a regime of widespread fiscal corruption in a static framework. We prove that the relationship between the tax rate and tax revenues depends on the relevance of the \u201cshame effect\u201d of being detected in a corrupt transaction. In countries with a \u201clow shame\u201d effect, tax revenues grow as the tax rate increases. Moreover, there is a critical tax rate where the growth rate of tax revenues begins to reduce. In countries with a high \u201cshame effect\u201d tax revenues increase up to a threshold value and then decrease

Why do Transparent Public Procurement and Corruption Go Hand in Hand

In this paper we try to construct an hypothesis as to why, as data seem to show, countries that adopt more \u201ctransparent procurement\u201d, as calculated by the share of tender advertised publicly, are also the ones where corruption is considered more pervasive. We describe an economy where in equilibrium countries more prone to corruption find it optimal to increase transparency more to curb corruption itself. However, as transparency is costly to implement, this will not be enough to bring corruption levels to those of inherently less corrupt societies. We finally suggest alternative ways to reduce corruption in procurement