The Impact of Corruption on Tax Revenues: Evidence from selected Developing Countries

In recent years, and especially in the 1990s, a phenomenon broadly referred to as corruption has attracted a great deal of attention Corruption can be defined as misusing public office for private gain. It is a multi-dimensional phenomenon caused by economic as well as cultural, political and legal factors. The purpose of the present paper is to determine the impact of corruption on government tax revenues in developing countries. To do so, the paper concentrated on a sample of 27 developing countries for which the necessary data were available during 2002-2006.We have employed a composite index of corruption called Corruption Perception Index (CPI). CPI varies from zero (highest level) and 10 (lowest level). Our findings based on panel data regression models support a positive and significant relationship between CPI and tax revenues. In other words, the higher is the corruption the lower will be the tax ratios. Therefore, developing countries should use policies to alleviate corruption in order to raise more government tax revenue