Abstract

Our framed laboratory experiment analyses the causal relationship between corruption and tax evasion and explores whether deterring one may have desirable spill over effects on the other. We find that the possibility of corruption causally increases tax evasion. The data offers weak evidence that tax evasion leads to more corruption. Introducing a policy to detect and punish public officials who embezzle from tax revenues significantly reduces tax evasion on the part of citizens. However, auditing and punishing tax evading citizens do not deter embezzlement on the part of public officials. Public good provision increases in all deterrence treatments compared to a baseline, with a “Big bang” treatment in which both tax evasion and corruption are detectable and punishable being the most effective. A standalone anti-corruption monitoring and punishment strategy is the next most effective policy followed by tax auditing. Thus, faced with two “evils” regarding public good provision, allocating more resource to fighting corruption may be the better policy response.