Can tax simplification help lower tax corruption?

Rajul Awasthi, Nihal Bayraktar

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This paper seeks to find empirical evidence of a link between tax simplification and corruption in tax administration. It attempts to do this by first defining “tax simplicity” as a measurable variable, and exploring empirical relationships between simpler tax regimes and corruption in tax administrations. Corruption in tax administration is calculated by using data series from the World Bank’s Enterprise Survey Database. The focus is on business taxes. 104 countries from different income groups and regions of the world are included in this study. The time period is 2002–2012. The empirical findings support the existence of a significant link between the measure of tax corruption and tax simplicity, so, a less complex tax system is shown to be associated with lower corruption in tax administration. It is predicted that the combined effect of a 10 % reduction in both the number of payments and the time to comply with tax requirements can lower tax corruption by 9.64 %. Some interesting regional differences are observed in the results. While the impact on tax simplification on tax corruption is expected to be the highest in the LAC and SSA regions, the weakest economic significance is observed in the SASIA and EAP regions. Similarly, the income level of countries plays an important role in determining the impact of tax simplification on tax corruption; specifically, the link is stronger for lower income level countries. The positive link between tax simplicity and lower tax corruption has useful policy implications.

Original languageEnglish (US)
Pages (from-to)297-330
Number of pages34
JournalEurasian Economic Review
Volume5
Issue number2
DOIs
StatePublished - Dec 1 2015

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Tax
Corruption
Tax administration
Simplicity
Income level
Income
Regional differences
World Bank
Economic significance
Data base
Policy implications
Business taxes
Payment
Tax system
Low income
Empirical evidence

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

Cite this

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Can tax simplification help lower tax corruption? / Awasthi, Rajul; Bayraktar, Nihal.

In: Eurasian Economic Review, Vol. 5, No. 2, 01.12.2015, p. 297-330.

Research output: Contribution to journalArticle

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