Corruption, Tax Evasion, and Economic Development in Economies with Decentralised Tax Administrative System

Anum Ellahi


This theoretical paper looks into joint determination of
corruption and development where there is a decentralised bureaucratic
setup in a multi-tiered system: tier one bureaucrats and tier two
bureaucrats. Corruption takes place at two levels, firstly when tier one
bureaucrats collude with households for tax evasion, and secondly when
tier one and tier two bureaucrats collude to hide corruption. This paper
determines that at high levels of corruption, there is low development,
and at a low incidence of corruption, there is high development. This
paper postulates that for a developing country like Pakistan, low tax
collection due to poor institutional decentralisation leads to low
economic growth and development. JEL Classifications: E02, E26, E42
Keywords: Corruption, Tax Evasion, Economic Growth

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