Tax Evasion, Corruption and Market Entry

22 Pages Posted: 27 Jul 2016

See all articles by André Seidel

André Seidel

University of Bergen, Department of Economics

Marcel P. Thum

Dresden University of Technology - Faculty of Economics and Business Management; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute; Institute for Corruption Studies

Date Written: September 2016

Abstract

We analyze the impact of tax policy on the market entry of firms in the presence of corruption and tax evasion. In a world with corruption, firms must bribe corrupt officials to enter the market. For a given level of bribes, higher tax rates and stricter enforcement of taxation decrease tax evasion but typically reduce market entry. However, when the level of bribes reacts to tax policy, higher taxes and stricter enforcement of taxation can have a double benefit. Up to a certain threshold, for which we develop a simple rule, stricter enforcement increases market entry and reduces tax evasion.

Suggested Citation

Seidel, André and Thum, Marcel, Tax Evasion, Corruption and Market Entry (September 2016). Scottish Journal of Political Economy, Vol. 63, Issue 4, pp. 377-398, 2016, Available at SSRN: https://ssrn.com/abstract=2814771 or http://dx.doi.org/10.1111/sjpe.12100

André Seidel (Contact Author)

University of Bergen, Department of Economics ( email )

Muséplassen 1
N-5008 Bergen, +47 55 58
Norway

Marcel Thum

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Institute for Corruption Studies

Stevenson Hall 425
Normal, IL 61790-4200
United States

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