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.
Highlights
Corruption is a phenomenon probably as old as mankind itself
As far as the economic impacts are concerned, the consequences related to the investment impact, capital accumulation, labour force and the relevant economic growth are of particular importance
Zero persistence illustrates the relatively random and isolated corruption behaviour that is reflected in the perception of corruption deteriorating, which, quickly subsides and is not a systematic corruption phenomenon
Summary
Corruption is a phenomenon probably as old as mankind itself. The negative and sometimes even devastating effects it has on most areas of society and economy are far-reaching and have been widely described by numerous researchers. It is essential to underline at an early stage that it is the erosion of these variables that undermines the economic level and social well-being, but it is the corruption-related transmission channels that significantly impact taxation as such. Even with a relatively high tax burden, an economy may find itself in good shape given that the corruption level, lobbying and non-transparent behaviour is low. This is intuitively visible, for example, in the Scandinavian countries. In this regard, we must not underestimate the negative effects a corrupt and non-transparent environment has on increasing the share of the shadow economy while adding up all the negative consequences to this
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