Corruption, Taxation And Economic Growth: Theory And Evidence

In this paper, the authors analyze the interaction between corruption, taxation and economic growth. These contributions are twofold. Theoretically, in an endogenous growth model, they introduce corruption in two different ways: corruption in the public expenditure and corruption in the public revenue. They show two opposing effects. Under certain conditions, corruption can affect growth rate positively but it can also exert a negative effect via fiscal revenue. Not only does it tend to make the tax rate, which maximizes the long run growth rate sub-optimal, but it can also create distortions that can lead to excessive tax rates harmful to growth.