Corruption, Taxation and the Impact on the Shadow Economy

Abstract

While assessing the economic impacts of corruption, the corruption-related transmission channels which influence taxation as such have to be duly considered. Taking the example of the Czech Republic, this article aims to evaluate the impacts corruption has on the size of the shadow economy as well as on the individual sources of long-term economic growth, making use of a transmission channel through which corruption affects the tax burden components. Using the method of an extended DSGE model, it confirms the initial assumption that an increase in perceived corruption supports the shadow economy’s growth, but at the same time, it demonstrates that corruption and especially its perception has a significantly different effect on two key areas—the capital accumulation and the labour force size. It further identifies another sector of the economy representing taxes which are prone to tax evasion while asserting that corruption has a much more destructive effect on this sector of the economy, offering generalized implications for other post-communist EU member states in a similar situation.

European Green Deal: Environmental Taxation and Its Sustainability in Conditions of High Levels of Corruption

“…To successfully estimate the parameters of the model, one has to interpolate these series to find the quarterly frequencies. The calibrated parameters and steady-state values are in accordance with other studies focused on the modelled economy (see [38]).…”

“…frequencies. The calibrated parameters and steady-state values are in accordance with other studies focused on the modelled economy (see [38]).…”

“…The steady states of endogenous quantities were calculated from the calibrated values of parameters and the values of steady states of exogenous quantities within the non-linear model form using Matlab 2020a and the Dynare toolbox version 4.6.1 [37]. More information on the specific calibration of structural parameters and steady states of exogenous quantities can be found in the article by Němec et al [38]. After calibrating the parameters and obtaining the steady-state solution of the non-linear model, we used these results to perform the simulations using the log-linearised model.…”

Corruption in Public Administration as a Brake on Transition to Industry 4.0

“…The time series databases from the Czech National Bank (2021), Czech Statistical Office (2021), Ministry of Finance of the Czech Republic (2021), and Transparency International (2021a) were used. A more detailed description of data sources and calibration of structural parameters and steady-state values are available in Němec et al (2021) who provide the simulated impacts of shocks in a fully calibrated model. They are also listed below as a benchmark in the description of the results.…”

“…To summarize the above, in our empirical analysis below, we assume that the high level of corruption and its perception causes an additional tax burden, which is reflected in a higher extent of the shadow economy, which can be effectively captured in our modified DSGE model (for more, see the details of the model in Němec et al, 2021). On the contrary, the extent of the shadow economy can be eliminated by higher quality of public administration as a key element of the institutional environment of public policy.…”