Tax Incentives and Corruption: Evidence and Policy Implications

Zelekha, Y., & Sharabi, E.

Abstract:
The provision of tax incentives to enhance investments, may lead to corruption. However, this well known claim has never been tested empirically. Based on unique large cross-section sample data and 2SLS analysis, it presents first empirical evidence in which countries with high levels of tax incentives will usually face high levels of corruption. Second, it helps to resolve the debate whether tax incentives enhance or deter investments. The policy implication is that a country that desires to enhance investments, should consider first the negative indirect effects of tax incentives, through corruption, on economic activity in general and investments in particular.

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  • Zelekha, Y., & Sharabi, E. (2012). Tax Incentives and Corruption: Evidence and Policy Implications. International Journal of Economic Sciences, I(2), 138–159.

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