Effect of Corruption on Tax Revenues in the Middle East

By P. Imam, Davina F. Jacobs. Social Science Research Network, 2007

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Abstract This study estimates the impact of corruption on the revenue-generating capacity of different tax categories in the Middle East. This is done over a period preceding the Global Crisis and the Arab Spring, to avoid any biases brought about by these two far reaching events. We find that the low revenue collection as a share of GDP in the Middle East, compared to other middle-income regions is due in part to corruption, with certain taxes more affected than others. Taxes that require frequent interaction between the tax authority and individuals, such as taxes on international trade, seem to be more affected by corruption than most other types of taxation. This suggests that once political stability returns to the region, if governments need to raise more tax revenues in a way that minimizes distortions and maximizes social welfare, they should implement reforms that either reduce corruption or raise revenues from tax categories that are less susceptible to corruption. Possible reforms of the revenue system and administration are examined.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/95c474b8664a1f55f2e818d4d0040e068cbe6098