Corrupt Bureacracy and Privatization of Tax Enforcement in Bangladesh

This book integrates three issues: tax evasion, bureaucratic corruption and privatization. it answers the question: can the problem of tax evasion in a corrupt tax bureaucracy be tackled through privatization? The answer that it comes up with is ënóı. In a pervasive moral hazard situation private firms will engage in malfeasance as well as the tax officials. However, the crucial point is that the severity of the problem will be substantially different under a private regime. With private firms, tax evasion will be institutionalized and the transaction costs of negotiating and perpetrating a deal in evasion will be greatly reduced. This will be the result of more efficient operation of the market in corruption. Efficiency of the market in corruption will go up as the impact of structural and moral-psychological constraints will be slackened under a private regime. Consequently, the supply of corruption and demand for evasion will be higher than under the bureaucratic mode of tax enforcement. in the bureaucratic regime, the level of evasion remains relatively low as bureaucrats tend to minimize costs of participation in corruption; corruption takes place at the individual level and despite venality, tax-officials exercise self-restraint in the face of prohibitively high costs of negotiating and perpetrating corrupt deals.

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