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Cover von: Prohibition versus Taxation in Corrupt Environments
Desiree A. Desierto, John V. C. Nye

Prohibition versus Taxation in Corrupt Environments

Rubrik: Articles
Jahrgang 173 (2017) / Heft 2, S. 239-252 (14)
Publiziert 09.07.2018
DOI 10.1628/093245616X14618208477808
Veröffentlicht auf Englisch.
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If corruption is rife and tolerated by society, prohibiting the production of a good with negative social costs may be more efficient at limiting quantity than legalizing and taxing producers. It becomes incentive-compatible for a corrupt government to enforce prohibition and credibly limit supply in order to extract bribes from illegal producers. In equilibrium, total quantity is low. In contrast, when the good is legal and taxed, a corrupt government can extract rents only by expropriating the tax revenues. Thus, it prefers a larger market in order to generate more taxes, and quantity is higher.