Effects of institutional history and leniency on collusive corruption and tax evasion

Abstract

We investigate the effects of an institutional mechanism that incentivizes taxpayers to blow the whistle on collusive corruption and tax compliance. We explore this through a formal leniency program. In our experiment, we nest collusive corruption within a tax evasion framework. We not only study the effect of the presence of such a mechanism on behavior, but also the dynamic effect caused by the introduction and the removal of leniency. We find that in the presence of a leniency mechanism, subjects collude and accept bribes less often while paying more taxes, but there is no increase in bribe offers. Our results show that the introduction of the opportunity to blow the whistle decreases the collusion and bribe acceptance rate, and increases the collected tax yield. It also does not encourage bribe offers. In contrast, the removal of the institutional mechanism does not induce negative effects, suggesting a positive spillover effect of leniency that persists even after the mechanism has been removed.

Public sector reforms and their impact on the level of corruption: A systematic review

“…Five studies test the effect of policies guaranteeing impunity to officials or citizens who report corrupt practices (principal witness/leniency treatment/asymmetric liability) on collusive bribery (Abbink & Wu, 2017 ; Bigoni et al, 2015 ; Engel et al, 2016 ; Christofl et al 2017; Buckenmaier et al, 2018 ), and extortionary bribery (Abbink et al, 2014 ).…”

“…Although leniency policies, aimed at encouraging reporting of corrupt practices by guaranteeing impunity to officials or citizens, should discourage demanding bribes in anticipation of the whistleblowing, results of existing studies do not unequivocally support such assumption. In some cases, leniency policies reduce collusive bribery (Bigoni et al, 2015 ; Buckenmaier et al, 2018 ) but at the cost of making bribery more profitable for bidders (Christofl et al 2017 ). According to one study, leniency does not show a significant impact on collusive bribery alone but it looks promising when associated with policies that limit agent's and client's exposure to one another, such as staff rotation (Abbink & Wu, 2017 ).…”

Does Whistleblowing on Tax Evaders Reduce Ingroup Cooperation?

“…Thus, a law maker has to show leniency toward whistleblowers, whose degree affects the effectiveness of the program (Chen and Rey, 2013), something which also depends on the intrinsic motives of the whistleblower (Heyes and Kapur, 2009). Buckenmaier et al (2020) show that introducing the possibility to blow the whistle on others both reduces the probability that subjects collude and accept bribes and increases tax compliance. More importantly, they also document strong spillover effects of leniency programs, with a strong time persistence of the effects of the whistleblowing program after its removal.…”

Experimental Trends in Corruption and Tax Evasion

“…On the other hand, whistle-blowing with asymmetric leniency reduces corruption significantly. Buckenmaier et al (2018) study collusive corruption within a tax evasion framework in the bribery game introduced in Abbink et al (2002). In the basic game without leniency, each taxpayer receives a fixed income and is taxed at a fixed rate that has to be reported to a tax official.…”