The Political Economy of Corruption

By Arvind K. Jain | Go to book overview

Notes
1
For a concise survey of this literature, see Tanzi (1998a).
2
The corruption perception index is the extended Transparency International index and is taken from Lambsdorff (1998) and real per capita GDP is in purchasing power parity US dollars and is taken from International Monetary Fund's World Economic Outlook database. The original index which ranges from 0 (highly corrupt) to 10 (highly clean) has been rescaled (i.e., adjusted index = 10-original index) so that higher values of the adjusted index represent higher perceptions of corruption.
3
Similar results are obtained using other corruption indexes. Recent studies of causes of corruption interpret this correlation as causation running from per capita GDP to corruption; see Treisman (2000).
4
See Acs, Carlsson, and Karlsson (1999) and Acs and Yeung (1999).
5
Large enterprises tend to dominate in process innovations because they have the capacity to appropriate the returns to research and development.
6
See Acs and Yeung (1999).
7
See EBRD (1999).
8
EBRD defines smaller firms as having less than forty-nine employees; medium-size firms as having between fifty and 499 employees and large firms as having more than 500 employees.
9
See Hellman, Jones, Kaufmann, and Schankerman (2000).
10
This by no means represents a unanimous view as argued in Tanzi and Davoodi (1997). See also Devarajan, Easterly, and Pack (1999), Easterly (1999), and Easterly and Levine (2000) for new international evidence in the case of Africa, and a large sample of developed and developing countries.
11
However by reducing government tax revenue, it may reduce spending or increase the fiscal deficit.
12
See also Shleifer and Vishny (1993).
13
Gupta, Davoodi, and Alonso-Terme (1998) provide evidence that corruption increases income inequality by reducing the progressivity of the tax system.
14
The corruption perception index is based on Business International data and International Country Risk Guide data, used previously by Tanzi and Davoodi (1997). A higher value of the index represents a higher perception of corruption.
15
The table represents the estimated coefficient on the corruption index only. Results for other variables included in the regression are identical to what are found in the literature. Tax revenues increase with per capita GDP, and openness, but fall with agriculture share of GDP.
16
Direct taxes are assumed to consist of four taxes in Table 5.2 (income, profit, and capital gains taxes), social security tax, payroll tax, and property tax.
17
Two caveats should be mentioned regarding the impact of corruption on VAT. First, the regression does not control for the nominal rate of the VAT; a higher rate can create greater incentives for corruption and tax evasion. Second, the available data do not allow a distinction of the revenues from VAT from those of turnover and sales taxes.

Bibliography

a
Abed, G. and Davoodi, H. R. (2000) "Corruption, Structural Reforms and Economic Performance in the Transition Economies," IMF Working Paper Series no. 132, Washington, DC: International Monetary Fund.
Acs, Z. J., Carlsson, B., and Karlsson, C. (eds) (1999) Entrepreneurship, Small

-107-

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