Corruption, extortion and evasion

Corruption, evasion and the abuse of power - and the possibility thereof - are pervasive features of economic activity. A prominent instance is tax co llection. This paper examines the implications of corruptibility and the po tential abuse of authority for the effects and optimal design of (potential ly non-linear) tax collection schemes. Amongst the findings are that: the d istributional effects of evasion and corruption are unambiguously regressiv e under the kinds of schemes usual in practice; and collecting progressive taxes without inducing evasion or corruption may require that inspectors be paid commission on high income reports (but not on low), with the cost of this potentially creating what seems to be a previously-unnoticed trade-off between equity and efficiency. (C) 1999 Elsevier Science S.A. All rights r eserved.