Tax Administration Practices and Firms' Perceptions of Corruption: Evidence from Europe and Central Asia

Abstract

Two competing conceptualizations of corruption in the literature allow viewing it either as efficient or burdensome from firms' perspective. Using data on the prevalence and nature of firms' interactions with tax authorities in 28 countries in Europe and Central Asia, this paper contributes to the evaluation of competing ideas in the literature about firms’ experience of corruption in tax administration. The findings presented in the paper provide provisional support for the second line of reasoning, that corruption in taxation is a burden, rather than a type of efficiency. Special emphasis is given to examination of taxation-related determinants of corruption prevalence (frequency and magnitude of bribery), as well as the effect of the interaction with tax authorities on perception of tax and overall corruption. Regardless of country context, it appears that, more than anything else, perceived corruption in tax administration and actual experiences with bribery during interactions with tax officials, affect the overall perceptions of corruption.