Are Corruption and Taxation Really Harmful to Growth? Firm-Level Evidence

24 Pages Posted: 20 Apr 2016

See all articles by Jakob Svensson

Jakob Svensson

Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR)

Raymond J. Fisman

National Bureau of Economic Research (NBER); Boston University

Date Written: November 2000

Abstract

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 rf250@columbia.edu or jakob.svensson@iies.su.se.

Suggested Citation

Svensson, Jakob and Fisman, Raymond, Are Corruption and Taxation Really Harmful to Growth? Firm-Level Evidence (November 2000). World Bank Policy Research Working Paper No. 2485. Available at SSRN: https://ssrn.com/abstract=632555

Jakob Svensson (Contact Author)

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden
+46 8 163 060 (Phone)
+46 8 161 443 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Raymond Fisman

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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