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Econometric Analysis of the Effects of Corruption on Government Tax Revenue: Evidence from Panel Data in Developed and Developing Countries

Received: 25 May 2020     Accepted: 8 June 2020     Published: 20 June 2020
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Abstract

Corruption and tax evasion remain main problems in both developed and developing countries. So, contribution of this study was to extend the conventional determinants of tax revenue over gross domestic product not only supply factor but also demand factor such as corruption, political stability, and rule of low which determine the tax revenue over gross domestic product to a significant extent. Panel regression model was used for analysis. Panel data were collected from 33 developing and developed countries for the period of 2002-2017. The data sets which were used in model analysis were obtained from the database of the world development indicators. As the fixed effect regression result indicates corruption has significant adverse effect on government tax revenue over gross domestic product in both developed and developing countries. The least corrupted countries collect 6% more tax revenue than high corrupted countries. The great progress in corruption has to be monitored and reduced. So, corruption no longer considered as an exogenous factor in an economy, it should be considered as a controlled and minimized phenomenon by the democratic institution and civil society. Therefore legislative reforms have to be continued in order to diminish corruption.

Published in European Business & Management (Volume 6, Issue 2)
DOI 10.11648/j.ebm.20200602.12
Page(s) 28-35
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Developed and Developing Countries, Effect of Corruption, Panel Data, Tax Revenue over GDP

References
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[3] Ajaz, T. And Ahmad, E., (2010). The effect of corruption and governance on tax revenues The Pakistan development reviews 49: 4 Part II, Pp. 405–417.
[4] Akça, H., Ata A. Y. and Karaca C. (2012), Inflation and Corruption Relationship: Evidence from Panel Data in Developed and Developing Countries. International Journal of Economics and Financial Issues Vol. 2 (3), pp. 281-295.
[5] Akçay S., (2006), Corruption And Human Development. Cato Journal, Vol. 2 6 (1).
[6] Ali Al-Sadig, (2009). The Effects of Corruption on FDI Inflows. Cato Journal, Vol. 29, No. 2
[7] Baltagi, B. H. (2005), Econometric Analysis of Panel Data. Third Edition, John Wiley & Sons Ltd., West Sussex, England.
[8] Blackburn, K & Powell, J (2011). Corruption, inflation and growth' Economics Letters, vol. 113, no. 3, pp. 225-227.
[9] Brasoveanu, I. V. and Brasoveanu L. O., (2010). Correlation between corruption and tax revenues. The Bucharest Academy of Economic Studies.
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[11] Brock, G. N. (2014). Institutional Integrity, Corruption, and Taxation. Edmond J. Safra Working Papers, 2 (3), 1-54.
[12] Cukierman A., Edwards S., And Tabellini G. (1989). Seignorace and political instability national bureau of economic research working paper No. 3199, Massachusetts Avenue.
[13] Dridi, M, (2013). Corruption and Economic Growth: The Transmission Channels Faculty of Economic Sciences and Management. University of Sousse, Tunisia.
[14] Gbewopo A (2011). Corruption, taxation and economic growth: theory and evidence. 2011. HAL Id: halshs-00556668.
[15] Greene, W. (2002). Econometrics analysis. 5th Ed. New York, NY: prentice-Hall.
[16] Gujarati, D. N. (2004). Basic Econometrics. 4th ed. New York, NY: McGraw-Hill.
[17] Hwang, J. (2002). A Note on the Relationship between Corruption and Government Revenue. Journal of Economic Development Vol. 27 (2).
[18] IMF (2017). Corruption, Taxes and Compliance. Prepared by Baum, A., Gupta, S., Kimani, E. and Tapsoba, S. J. Working paper.
[19] IMF (2016). Corruption: Costs and Mitigating Strategies. Fiscal Affairs and Legal Departments. Staff Team from the Fiscal Affairs Department and the Legal Department.
[20] M Braun, M. and Di Tella, R., (2000). Inflation and Corruption. Harvard Business School, MA 02163, US.
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  • APA Style

    Gedefaw Abebe, Seyfe Fikre. (2020). Econometric Analysis of the Effects of Corruption on Government Tax Revenue: Evidence from Panel Data in Developed and Developing Countries. European Business & Management, 6(2), 28-35. https://doi.org/10.11648/j.ebm.20200602.12

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    ACS Style

    Gedefaw Abebe; Seyfe Fikre. Econometric Analysis of the Effects of Corruption on Government Tax Revenue: Evidence from Panel Data in Developed and Developing Countries. Eur. Bus. Manag. 2020, 6(2), 28-35. doi: 10.11648/j.ebm.20200602.12

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    AMA Style

    Gedefaw Abebe, Seyfe Fikre. Econometric Analysis of the Effects of Corruption on Government Tax Revenue: Evidence from Panel Data in Developed and Developing Countries. Eur Bus Manag. 2020;6(2):28-35. doi: 10.11648/j.ebm.20200602.12

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  • @article{10.11648/j.ebm.20200602.12,
      author = {Gedefaw Abebe and Seyfe Fikre},
      title = {Econometric Analysis of the Effects of Corruption on Government Tax Revenue: Evidence from Panel Data in Developed and Developing Countries},
      journal = {European Business & Management},
      volume = {6},
      number = {2},
      pages = {28-35},
      doi = {10.11648/j.ebm.20200602.12},
      url = {https://doi.org/10.11648/j.ebm.20200602.12},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ebm.20200602.12},
      abstract = {Corruption and tax evasion remain main problems in both developed and developing countries. So, contribution of this study was to extend the conventional determinants of tax revenue over gross domestic product not only supply factor but also demand factor such as corruption, political stability, and rule of low which determine the tax revenue over gross domestic product to a significant extent. Panel regression model was used for analysis. Panel data were collected from 33 developing and developed countries for the period of 2002-2017. The data sets which were used in model analysis were obtained from the database of the world development indicators. As the fixed effect regression result indicates corruption has significant adverse effect on government tax revenue over gross domestic product in both developed and developing countries. The least corrupted countries collect 6% more tax revenue than high corrupted countries. The great progress in corruption has to be monitored and reduced. So, corruption no longer considered as an exogenous factor in an economy, it should be considered as a controlled and minimized phenomenon by the democratic institution and civil society. Therefore legislative reforms have to be continued in order to diminish corruption.},
     year = {2020}
    }
    

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  • TY  - JOUR
    T1  - Econometric Analysis of the Effects of Corruption on Government Tax Revenue: Evidence from Panel Data in Developed and Developing Countries
    AU  - Gedefaw Abebe
    AU  - Seyfe Fikre
    Y1  - 2020/06/20
    PY  - 2020
    N1  - https://doi.org/10.11648/j.ebm.20200602.12
    DO  - 10.11648/j.ebm.20200602.12
    T2  - European Business & Management
    JF  - European Business & Management
    JO  - European Business & Management
    SP  - 28
    EP  - 35
    PB  - Science Publishing Group
    SN  - 2575-5811
    UR  - https://doi.org/10.11648/j.ebm.20200602.12
    AB  - Corruption and tax evasion remain main problems in both developed and developing countries. So, contribution of this study was to extend the conventional determinants of tax revenue over gross domestic product not only supply factor but also demand factor such as corruption, political stability, and rule of low which determine the tax revenue over gross domestic product to a significant extent. Panel regression model was used for analysis. Panel data were collected from 33 developing and developed countries for the period of 2002-2017. The data sets which were used in model analysis were obtained from the database of the world development indicators. As the fixed effect regression result indicates corruption has significant adverse effect on government tax revenue over gross domestic product in both developed and developing countries. The least corrupted countries collect 6% more tax revenue than high corrupted countries. The great progress in corruption has to be monitored and reduced. So, corruption no longer considered as an exogenous factor in an economy, it should be considered as a controlled and minimized phenomenon by the democratic institution and civil society. Therefore legislative reforms have to be continued in order to diminish corruption.
    VL  - 6
    IS  - 2
    ER  - 

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Author Information
  • Department of Agricultural Economics, College of Agriculture and Natural Resource, Bonga, University, Bonga, Ethiopia

  • Department of Economics, Collage of Business and Economics, Bonga, University, Bonga, Ethiopia

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