Reference : Corruption, Tax Evasion and Social Values
E-prints/Working papers : First made available on ORBilu
Business & economic sciences : Macroeconomics & monetary economics
Corruption, Tax Evasion and Social Values
Litina, Anastasia mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Palivos, Theodore mailto [Athens University of Economics and BusinessCorruption, Tax Evasion and Social Values > Economics]
Preliminary Version
[en] Corruption ; Multiple Equilibria ; Stigma
[en] We provide empirical support and a theoretical explanation for the vicious circle of political corruption and tax evasion in which countries often fall into. We address this issue in the context of a model with two distinct groups of agents: citizens and politicians. Citizens decide the fraction of their income for which they evade taxes. Politicians decide the fraction of the public budget that they peculate. We show that multiple self-fulfilling equilibria with different levels of corruption can emerge based on the existence of strategic complementarities, indicating that corruption may corrupt. Furthermore, we find that standard deterrence policies cannot eliminate multiplicity. Instead, policies that impose a strong moral cost on tax evaders and corrupt politicians can lead to a unique equilibrium.
University of Luxembourg-CREA
Researchers ; Students ; General public

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