The impact of corruption on taxation in the Eastern European countries

Abstract

Corruption is a phenomenon widespread almost all over the world, but its level varies from country to country. In addition, there are very large discrepancies from one geographic region to another. If in some countries the impact of corruption is not obvious, in other countries the effects on poverty can be devastating. The effects of corruption on the standard of living have been extensively studied in the literature. However, there are other factors that can be influenced by the level of corruption, such as taxation. A comparison of tax rates by countries is difficult and somewhat subjective, as tax laws in most countries are extremely complex and the tax burden falls differently on different groups in each country and sub-national unit. This paper investigates the impact of corruption on fiscal policy (tax rates). To achieve the purpose of the research, we analyse the link between the level of corruption and the degree of taxation in the Eastern European countries. The results show that there is a direct relationship between the factors analysed. Our main contribution consists in finding differentiated results of the influence of corruption on the level of tax rates among developing countries. Our findings suggest that governments and policy-makers need to acknowledge that the anti-corruption fight requires not only the right fiscal policies, but also the right way of implementing these policies, recognizing the role of quality institutions, which need to prevail in any country.