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Anti-tax evasion, anti-corruption and public good provision: An experimental analysis of policy spillovers

Ritwik Banerjee, Amadou Boly and Robert Gillanders
Journal Name
Journal of Economic Behavior & Organization
Journal Publication
others
Publication Year
2022
Journal Publications Functional Area
Economics
Publication Date
Vol. 197, May 2022, Pg. 179-194
Abstract

Our framed laboratory experiment analyses the causal relationship between corruption and tax evasion and explores whether deterring one may have desirable spill over effects on the other. We find that the possibility of corruption causally increases tax evasion. The data offers weak evidence that tax evasion leads to more corruption. Introducing a policy to detect and punish public officials who embezzle from tax revenues significantly reduces tax evasion on the part of citizens. However, auditing and punishing tax-evading citizens do not deter embezzlement on the part of public officials. The public good provision increases in all deterrence treatments compared to a baseline, with a “Big bang” treatment in which both tax evasion and corruption are liable to be detected and punished being the most effective. A standalone anti-corruption monitoring and punishment strategy is the next most effective policy followed by tax auditing. Thus, when faced with two “evils” regarding the public good provision, allocating more resources to fight corruption may be a better policy response.

Anti-tax evasion, anti-corruption and public good provision: An experimental analysis of policy spillovers

Author(s) Name: Ritwik Banerjee, Amadou Boly and Robert Gillanders
Journal Name: Journal of Economic Behavior & Organization
Volume: Vol. 197, May 2022, Pg. 179-194
Year of Publication: 2022
Abstract:

Our framed laboratory experiment analyses the causal relationship between corruption and tax evasion and explores whether deterring one may have desirable spill over effects on the other. We find that the possibility of corruption causally increases tax evasion. The data offers weak evidence that tax evasion leads to more corruption. Introducing a policy to detect and punish public officials who embezzle from tax revenues significantly reduces tax evasion on the part of citizens. However, auditing and punishing tax-evading citizens do not deter embezzlement on the part of public officials. The public good provision increases in all deterrence treatments compared to a baseline, with a “Big bang” treatment in which both tax evasion and corruption are liable to be detected and punished being the most effective. A standalone anti-corruption monitoring and punishment strategy is the next most effective policy followed by tax auditing. Thus, when faced with two “evils” regarding the public good provision, allocating more resources to fight corruption may be a better policy response.