Corruption in a Tax Game
Kabir, M. A., & Choudhury, N. (2020). Corruption in a Tax Game. The Journal of Applied Business and Economics, 22(2), 120-136.
17 Pages Posted: 18 May 2021
Date Written: May 17, 2021
Our inability to fully predict the complexity of tax behavior stems from the fact that tax evasion, by its very nature, is difficult to observe. The illegality of underreporting taxable income generates the need to maintain secrecy which makes it all the more strenuous to isolate the factors that influence wealth disclosure to tax officials. This paper is an experimental tax game in the context of Bangladesh where a culture of corruption permeates. In particular, this research intends to investigate individuals’ behavior when they have an incentive to partake in corruption by evading taxes through paying bribes. The study finds that individuals readily choose the financially lucrative and payoff maximizing option of paying bribes, whenever possible, to mitigate the risks of getting caught. We also find that, more often than not, higher tax rate decreases wealth disclosure. Moreover, there is considerable evidence that enforcement of punishment, through the use of audits, acts as a deterrent when it comes to under-reporting wealth.
Keywords: corruption, Tax game, wealth disclosure
JEL Classification: E21, K34, K42
Suggested Citation: Suggested Citation