Prohibition versus taxation in corrupt environments by Desiree A. Desierto and John V. C. Nye
By: Desierto, Desiree A
.
Contributor(s): Nye, Joseph S.
Material type: 
ArticlePublisher: 2017Subject(s): CORRUPCION | CONTROL | POLITICA FISCAL | IMPUESTOS
In:
Journal of Institutional and Theoretical Economics : JITE p. 239-252Summary: If corruption is rife and tolerated by society, prohibiting the production of a good with negative social costs may be more efficient at limiting quantity than legalizing and taxing producers. It becomes incentive-compatible for a corrupt government to enforce prohibition and credibly limit supply in order to extract bribesfrom illegal producers. In equilibrium, total quantity is low. In contrast, when thegood is legal and taxed, a corrupt government can extract rents only by expropriatingthe tax revenues. Thus, it prefers a larger market in order to generate more taxes, and quantity is higher. (JEL: D21, D23, H41)
| Item type | Current location | Home library | Call number | Status | Date due | Barcode |
|---|---|---|---|---|---|---|
| IEF | OP 1533/2017/2-1 (Browse shelf) | Available | OP 1533/2017/2-1 |
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If corruption is rife and tolerated by society, prohibiting the production of a good with negative social costs may be more efficient at limiting quantity than legalizing and taxing producers. It becomes incentive-compatible for a corrupt government to enforce prohibition and credibly limit supply in order to extract bribesfrom illegal producers. In equilibrium, total quantity is low. In contrast, when thegood is legal and taxed, a corrupt government can extract rents only by expropriatingthe tax revenues. Thus, it prefers a larger market in order to generate more taxes, and quantity is higher. (JEL: D21, D23, H41)
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