Are Corruption and Taxation Really Harmful to Growth? Firm-Level Evidence
24 Pages Posted: 20 Apr 2016
Date Written: November 2000
Evidence from Uganda confirms that corruption retards development even more than taxation does.
Exploiting a unique data set containing information about the estimated bribe payments of Ugandan firms, Fisman and Svensson study the relationship between bribe payments, taxes, and firm growth in Uganda for the period 1995-97.
Using industry-location averages to circumvent the potential problem of endogeneity and to deal with issues of measurement error, they find that both the rate of taxation and the rate of bribery are negatively correlated with firm growth. For the full data set, a one percentage point increase in the bribery rate is associated with a three percentage point reduction in firm growth - an effect about three times that of taxation.
Moreover, after excluding outliers, the authors find that bribery has a much greater negative impact on growth, and taxation a considerably smaller one.
This provides some validation of firm-level theories of corruption, which posit that corruption retards development even more than taxation does.
This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to study the causes and consequences of corruption. The authors may be contacted at firstname.lastname@example.org or email@example.com.
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