Bribes vs. Taxes: Market Structure and Incentives∗
نویسندگان
چکیده
Firms in developing countries often avoid paying taxes by making informal payments to business tax inspectors. These bribes increase the cost of operating a business, and the price charged to consumers. To decrease these costs, we designed a feedback incentive scheme for business tax inspectors that rewards them according to the anonymous evaluation submitted by inspected firms. The scheme increases the bargaining power of firms in their relationship with tax officials and decreases the bribe size. In our model, firm heterogeneity shapes the interaction between firms and inspectors and the equilibrium bribery outcome. Feedback incentives both make firms with larger pass-through more attractive for inspectors. A tilted incentive scheme that attaches higher weights to the evaluation of smaller firms decreases targeting along this margin while decreasing the bribe size. We evaluate both schemes in a field experiment in Kyrgyzstan, and find evidence that is consistent with the model predictions. By decreasing bribes, our intervention reduces the average cost for firms and the price they charge to consumers. Since less firms substitute bribes for taxes, tax revenues increase. Our study highlights the role of firm heterogeneity and market structure in shaping the trade-off faced by firms and tax inspectors and provides clear evidence of pass-through of bribes to consumers.
منابع مشابه
Market Structure and Environmental Innovation
This paper studies ...rms’ incentives to invest in environmental R&D under different market structures (Cournot and Bertrand) and environmental policy instruments (emission standards, taxes, tradeable permits and auctioned permits). Because of market strategic e¤ects, R&D incentives vary widely across market structures and instruments. For example, when ...rms’ products are strategic substitute...
متن کاملIncome Taxation and Self-Employment: The Impact of Progressivity in Countries with Tax Evasion
Recently several developing and transitional countries changed their personal income tax from fairly progressive to at in an e¤ort to improve e¢ ciency. But how do taxes a¤ect incentives when people can sometimes tax evade and pay bribes? In this paper, I address this question by focusing on the e¤ects of personal income tax progressivity on the decision to become self-employed. I develop a th...
متن کاملA Signaling Approach to Optimal Income Taxation
How should the government design optimal income redistribution when individuals work to signal their skills to employers in the labor market? To address this question, I introduce labor market signaling into a Mirrlees optimal income tax environment. The signaling incentives create a wedge between the private and social returns to labor, with the private returns exceeding the social returns. Be...
متن کاملTaxes and Entrepreneurial Activity: Theory and Evidence for the U.S
Entrepreneurial activity is presumed to generate important spillovers, potentially justifying tax subsidies. How does the tax law affect individual incentives? How much of an impact has it had in practice? We first show theoretically that taxes can affect the incentives to be an entrepreneur due simply to differences in tax rates on business vs. wage and salary income, due to differences in the...
متن کاملMarket-based Approaches to Environmental Regulation
Economists argue that policymakers should take advantage of market principles in designing environmental regulations. Such market-based approaches – environmental taxes and cap-and-trade – use economic incentives to achieve environmental goals at lower costs. Market-based approaches have now become common due to near-unanimous advocacy by economists and early positive policy experiences. Despit...
متن کامل