Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 12/04: How middle-men can undermine anti-corruption reforms

Kjetil Bjorvatn (), Gaute Torsvik () and Bertil Tungodden ()
Additional contact information
Kjetil Bjorvatn: NORWEGIAN SCHOOL OF ECONOMICS AND BUSINESS ADMINISTRATION, Postal: Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Gaute Torsvik: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Bertil Tungodden: NORWEGIAN SCHOOL OF ECONOMICS AND BUSINESS ADMINISTRATION, Postal: Department of Economics, Helleveien 30, N-5045 Bergen, Norway

Abstract: The anti-corruption reform in the Tanzanian tax bureaucracy in the mid-1990s was apparently a short-lived success. In the wake of the reform, a number of “tax experts” established themselves in the market, many of them being laid off tax bureaucrats. We argue that middle-men can undermine the effect of an anti-corruption reform by reducing the uncertainty that firms face vis-à-vis a reformed tax bureaucracy, which in turn may encourage firms to pay bribes rather than taxes. Indeed, under some circumstances, middle-men can cause corruption to be higher after the reform than before the reform. Since the demand for middle-men may increase with the extent of the reform, we also demonstrate that a small reform may be more efficient in combatting corruption than a more radical reform.

Keywords: Corruption; reform; middle-men; institutions

JEL-codes: H26; K42; O12

28 pages, December 6, 2004

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