Fighting fiscal corruption: lessons from the Tanzania Revenue Authority

Over the last decade, several African countries have undertaken comprehensive reforms of their tax administrations to increase revenue and curb corruption. This article examines recent experiences in the fight against corruption in the Tanzania Revenue Authority (TRA). Two lessons of broader relevance are highlighted. Firstly, even with relatively high wages and good working conditions, corruption may continue to thrive. In a situation where there is high demand for corrupt services, it is unrealistic to provide tax officers with pay rates that can compensate for the amount gained through bribery. Without extensive and effective monitoring, wage increases may produce not only a highly paid, but also a highly corrupt tax administration. Secondly, hiring and firing procedures may lead to more corruption. Corrupt tax officers often operate in networks, which also include external actors. These corruption networks seem to have been strengthened because many of those fired were recruited to the private sector as ‘tax experts’. This partly explains why the positive process experienced in the initial phase of the new revenue authority was later reversed. Copyright © 2003 John Wiley & Sons, Ltd.     

The Impact of Tax Revenue from Capital Gains Realizations on State Income Tax Revenue and Budget Conditions

We explore the effect of the rapid increase in capital gains realizations on state income tax revenue during the 1990s and 2000s, and the effect that this had on state fiscal decisions regarding the use of these revenue. We find wide variation in the growth of capital gains realizations across states and that the growth in capital gains had a significant effect on state income tax revenue for many states. We find that states used a sizable portion of the additional revenue from capital gains to fund reserves in the year the revenue was generated, and that capital gains revenue lead to some reductions in taxes but not to increases in expenditures. The evidence suggests that states were conservative in their use of capital gains related revenues.     

Greasing the wheels? The impact of regulations and corruption on firm entry

This paper investigates the question of whether corruption might ‘grease the wheels’ of an economy. We investigate whether and to what extent the impact of regulations on entrepreneurship is dependent on corruption. We first test whether regulations robustly deter firm entry into markets. Our results show that the existence of a larger number of procedures required to start a business, as well as larger minimum capital requirements are detrimental to entrepreneurship. Second, we test whether corruption reduces the negative impact of regulations on entrepreneurship in highly regulated economies. Our empirical analysis, covering a maximum of 43 countries over the 2003–2005 period, shows that corruption facilitates firm entry in highly regulated economies. For example, the ‘greasing’ effect of corruption kicks in at around 50 days required to start a new business. Our results thus provide support for the ‘grease the wheels’ hypothesis.     

Public sector corruption and major earthquakes: A potentially deadly interaction

Recent studies have identified various negative effects of public sector corruption. We add to these by considering the association between corruption and deaths due to major earthquakes. After developing a brief theoretical model of the relation between these two variables we test the proposition by analyzing 344 quakes occurring between 1975 and 2003. The empirical model takes into account the endogeneity of corruption and controls for factors, such as earthquake frequency, magnitude, distance from population centers, and a country’s level of development which influence quake destructiveness. The results indicate that public sector corruption is positively related to earthquake deaths.     

Corruption, federalism, and policy formation in the OECD: the case of energy policy

We investigate whether the effect of government corruption is conditional on a country’s institutional structure. Federal systems have an additional layer of government, making lobbying relatively more costly. We investigate whether the effect of government corruption on environmental policy (in the form of restrictions on energy use) is conditional on a federal system being in place. Using 1982–96 data from 11 industry sectors in 12 OECD economies we find that while greater government corruption reduces the stringency of environmental policy, the effect declines in federal systems.     

TESTING ALTERNATIVE EXPLANATIONS OF CAPITAL CONTROL LIBERALIZATION*

The literature on why restrictions over capital flows have been liberalized is filled with alternative causal stories (the pluralist, statist and systemic model, and economic explanations). In this article, we provide a test of these models of capital control liberalization within the context of 18 OECD countries from 1967 to 1995. We have avoided the usual practice of aggregating multiple governments in one country within one year into one country‐year observation, and use the country‐year‐government as the unit of analysis instead to correctly test the relationship between government characteristics and liberalization policy. We find that when the government considers lifting or imposing restrictions over capital flows, it responds to both systemic pressures and the key supporters of free capital flows. Governments also consider the current account balance and are heavily influenced by the prior policy choice regarding restrictions on capital transactions. We fail to find support for such explanations as the impact of government ideology, government strength, and central bank independence.     

Youth bulges,insurrections and labor-market restrictions

This paper analyzes the link between large youth cohorts and violent conflicts when labor-market restrictions are present. Such restrictions are expected to limit the youth cohort’s access to income opportunities in the formal economy, and thus lower the youth-specific opportunity cost of insurrection activities. We develop a theoretical model of insurrection markets and integrate the youth cohort’s relative size. In equilibrium, a binding labor-market constraint interacts with the youth bulge in determining the level of insurrection activities within the society. We test the implications of our model on a sample of 135 non-OECD countries in the post-Cold War period and find the effect of the youth cohort’s relative size on conflict onsets to be moderated by changes in the labor-market conditions as measured by unemployment rates. Generally, the results provide evidence that the underlying institutional setting shapes the conflict potential inherent in a given demographic structure.     

Hold your nose and vote: corruption and public decisions in a representative democracy

This paper analyzes how corruption alters policy decisions in democracy, and examines whether this distortion can result in a long-term persistence of corruption even when the voters are well informed and rational. By applying a citizen-candidate model of representative democracy, the paper analyzes how corruption distorts the allocation of resources between public and private consumption, altering the policy preferences of elected and nonelected citizens in opposite directions. The outcome is a reduction in real public expenditure and, if the median voter??s demand for public goods is sufficiently elastic, a reduction in taxes. In this case, some citizens benefit indirectly from corruption. The paper also presents some empirical evidence that, in democratic countries, corruption results in lower tax revenue, and proceeds to show that, when this occurs, citizens anticipating a shift in preferences in favor of public expenditure may support institutions that favor corruption. This result complements the findings of other studies that have attributed the persistence of corruption in democracy to some failure on the part of the voters or the electoral system. It also bears implications for developing effective anticorruption strategies and for redefining the role that can be played by the international community.     

An Insider–Outsider Theory of Popular Tolerance for Corrupt Politicians

This article addresses the puzzle of electoral support for corrupt politicians in emerging democracies by examining citizens’ varying attitudes toward political corruption. We make an important theoretical distinction between perceptions of and tolerance for corruption, and argue that these different attitudes vary across individuals depending on whether they are political insiders or outsiders. We test our theory using Afrobarometer survey data from 18 sub‐Saharan African countries and find that individuals included within clientelistic networks simultaneously perceive corruption as ubiquitous and are more tolerant of malfeasance. Meanwhile, those individuals with partisan or ethnic ties to the incumbent are less likely to consider corruption as widespread. Finally, we explore whether variation in attitudes toward corruption influences citizens’ voting behavior, and find that insiders are less likely to “vote the rascals out.”     

Does corruption suppress voter turnout?*

This paper investigates to what extent voters’ perceptions of political corruption affect turnout. In previous research, two opposing views are put forward with regards to the relationship between corruption and turnout. On the one hand, corruption increases turnout because voters either are bought off to participate or because they are mobilized on clean government issues. On the other hand, corruption decreases turnout because presence of corruption corrodes the political system which leads to general cynicism, distrust and voter apathy. In this paper, we contribute to the existing research by adopting a multi-level approach to the relationship between corruption and turnout. We test the hypothesis that voters’ perceptions of corruption dampens turnout but that the effect is conditional upon the corruption context. We test our hypothesis by combining individual-level data and country-level data from 26 countries from the Comparative Study of Electoral Systems and country-level data from the Quality of Government Data Set. The findings show that perceiving corruption negatively affects turnout, but only in countries with low to medium levels of system corruption.     

Party systems,electoral systems and constraints on corruption

This article explores the relationship between the party system, electoral formulas and corruption. Previous research has focused on the various incentives for political actors to monitor, or engage in corruption based on variations in the electoral formula. However, the electoral formula has mainly served as a proxy for the party system – whether multi-party or two-party. In this analysis, I test directly the relationship between party systems and corruption and in addition, add a degree of nuance to the established line of thinking within this literature. I argue that two-party systems in countries with predominantly single-member district (SMD) electoral formulas will demonstrate lower corruption on average than multi-party systems in SMD countries. However, I argue that this interaction effect does not play out in countries with proportional representation (PR). I test this hypothesis on 70 democratic and semi-democratic countries from 1987 to 2005 and find strong empirical support for the claim that multipartism in SMD countries is associated with higher levels of corruption, while the party system’s relationship with corruption plays no role in PR countries.     

从国民性看中国的政治腐败问题

当前腐败问题成为国家和人民关注的热点话题,虽然出台了很多政策措施,但贪污腐败案却愈演愈烈,据调查我国每年因腐败造成的损失至少有数千亿元。可见,腐败如不及时治理必将祸国殃民。国民性是一个国家民族最主要的内在特征。它与腐败现象的产生有着一定的联系,所以,从国民性的角度,试图分析腐败现象的表现形式以及原因,探寻通过改造国民性来解决政治腐败问题。     

Corruption and the shadow economy: an empirical analysis

This paper analyzes the influence of the shadow economy on corruption and vice versa. We hypothesize that corruption and the shadow economy are substitutes in high income countries while they are complements in low income countries. The hypotheses are tested for a cross-section of 98 countries. Our results show that there is no robust relationship between corruption and the size of the shadow economy when perceptions-based indices of corruption are used. Employing an index of corruption based on a structural model, however, corruption and the shadow economy are complements in countries with low income, but not in high income countries.     

International Institutions and Domestic Compensation: The IMF and the Politics of Capital Account Liberalization

Certain governments have been faster than others in relaxing their restrictions on the cross‐border movement of capital. How can we explain the timing and extent of financial liberalization across countries since the 1970s? We argue that IMF stabilization programs provide a window of opportunity for governments to initiate financial reforms, but that policy makers are more likely to seize this opportunity when welfare expenditures are high. Large loans from the IMF shield policy makers from the costs of financial reform, while welfare expenditures provide credibility to the government's ex ante promises of compensation to individuals who are harmed by the reforms. We test this hypothesis on data for 87 countries from 1975 to 2002. We employ a spatial autoregressive error sample selection model which accounts for the nonrandom participation of countries in IMF programs as well as the processes of international policy diffusion. The results provide strong support for the interactive effect of IMF programs and domestic welfare expenditures on financial liberalization.     

Do Politics in Europe Benefit from Politicising Corruption?

In this article, two unexplored trends in European electoral politics are highlighted. Using newly collected data the article tracks the politicisation of corruption in electoral campaigns from 1981 to 2011, an electoral strategy that has been increasing over time in most European countries. It then empirically tests two aspects of this campaign strategy. First, what are the factors that are systematically associated with a party’s decision to politicise corruption? Second, what are the electoral effects in terms of relative vote share for parties that politicise corruption? Using an original data-set that employs multi-level data (parties nested in countries) the results demonstrate first that politicisation of corruption occurs systematically more often among established parties from the main opposition, new parties and parties on the political right, and occurs as a function of country-level corruption, district magnitude and public party financing. Second, it is found that the main opposition and new parties that use such a campaign strategy make significant electoral gains relative to the previous election compared to parties that do not politicise corruption. Yet gains are offset in low-corruption countries. The findings demonstrate salient implications for research on party systems, corruption studies and democratic legitimacy, among other areas of investigation.     

Freedom of information acts and public sector corruption

Various countries have recently implemented Freedom of Information acts believing that greater transparency can reduce public sector corruption. To test this, we analyze annual data on 128 countries between 1984 and 2003 using a variety of propensity score matching techniques and overall find no significant relationship with one exception: In the developing world, FOI acts are significantly associated with rising levels of corruption. Further investigation suggests this may be due to the fact that the effectiveness of FOI acts appears to be conditioned by a country’s institutional arrangements.     

Impact of natural disaster on public sector corruption

This paper uses inter-country panel data from 1990 through 2010 to examine how the occurrence of natural disasters affects corruption within the public sector. For a closer analysis, disaster is classified into various categories, including general floods, other floods, tropical storms, other storms, earthquakes, volcanic eruptions, and landslides. Furthermore, this paper explores whether natural disasters have different impacts on corruption levels in developed and developing countries. The study reveals a number of novel findings. (1) Natural disasters that cause substantial damage increase public sector corruption in both developing and developed countries. (2) Natural disasters have a greater impact on public sector corruption in developed countries than in developing countries. (3) In developed countries, natural disaster frequency has a significant impact on the level of corruption. Hence, foreseeable disasters increase corruption in general. In developed countries, an incentive may exist to live within disaster-prone areas because of the potential for disaster compensation payments.     

Candidate sex,corruption and vote choice

Existing research suggests that voters may view female politicians as less prone to corruption than male politicians. We argue that this voter belief can yield advantages to hypothetical female candidates as voters sometimes punish them less for bribe accusations. We test these propositions with hypothetical vignettes of sub-national executive races in Uruguay, Argentina and Chile. We find that only Uruguayans prefer allegedly corrupt female over male candidates, but when Uruguayans are told that hypothetical corruption is widespread, they do not prefer accused females. Moreover, voters in none of the countries prefer females among candidates who have fought corruption. Our findings thereby demonstrate that voters’ preferences for corrupt female candidates in hypothetical races can vary not only according to the specific justifications for the wrongdoing, but also across countries.     

The Politics and economics of revenue growth: A cross–national analysis

Despite considerable interest in comparative fiscal policy in general, and the high salience of tax policy and tax reform in the industrialized democracies, there are relatively few cross–national studies of the economic and political correlates of revenues over time. We undertake a cross–national time series study of revenue growth in fourteen OECD countries between 1958 and 1990.We test a number of political and economic hypotheses about revenue change, including political business cycle, 'fiscal illusion', elasticity, and ideological theories. For the 1958—1990 period, we find that all countries, regardless of revenue structure, experience higher real revenue growth as a result of inflation, but that revenue growth is more responsive to unemployment in countries that rely more on direct taxes compared to countries with less direct–tax reliance. We find that this effect is most pronounced in the post–1972 period. We also find that revenue tends to increase in the years following elections, consistent with the idea that governments try to minimize the political fallout from tax increases by separating them as much as possible from election campaign periods; this effect, too, is most pronounced in the post–1972 period. We find no support for 'fiscal illusion' and ideological theories of revenue growth.     

The politics and economics of revenue growth: A cross-national analysis

Abstract Despite considerable interest in comparative fiscal policy in general, and the high salience of tax policy and tax reform in the industrialized democracies, there are relatively few cross–national studies of the economic and political correlates of revenues over time. We undertake a cross–national time series study of revenue growth in fourteen OECD countries between 1958 and 1990.We test a number of political and economic hypotheses about revenue change, including political business cycle, 'fiscal illusion', elasticity, and ideological theories. For the 1958—1990 period, we find that all countries, regardless of revenue structure, experience higher real revenue growth as a result of inflation, but that revenue growth is more responsive to unemployment in countries that rely more on direct taxes compared to countries with less direct–tax reliance. We find that this effect is most pronounced in the post–1972 period. We also find that revenue tends to increase in the years following elections, consistent with the idea that governments try to minimize the political fallout from tax increases by separating them as much as possible from election campaign periods; this effect, too, is most pronounced in the post–1972 period. We find no support for 'fiscal illusion' and ideological theories of revenue growth.