Sunday, December 09, 2012

Is there a link between low taxation and corruption?

Following on from this post about low taxation and quality of life, I checked out the relationship between level of taxation and level of corruption. If there are no efficient public services to help you, there is a tendency to get service by bribery.

So, going again to the  list of countries' taxation as proportion of GDP,  I compare to Transparency Internationals' ranking of countries by perceived corruption.

The top 20 least corrupt countries have ten of the highest taxed countries in their membership.

The bottom 20 most corrupt countries have eight of the lowest taxed countries in their membership.

Which is consistent with the idea that bribery and corruption increases when there is no tradition of good public service.

And another thing: it is understandable and natural that a developing country should have a small state, and that taxation and state provision will increase as the country develops. Osborne and the Coalition should realise that they run the risk of returning us to less developed status in their attack on the state of our nation.

All of this should not be taken as full and uncritical endorsement of all public services in the UK. Any settled institution can become sclerotic and dysfunctional. This tendency needs to be overcome not by privatisation, but by bringing back the old Suggestion Box.

[Update] I have made an Excel chart comparing the list of countries by tax as % of GDP with the perceived corruption index. Here it is:

Critics can say that the R-squared value of the trend line is not impressive. I accept this, but given the rawness of the data - with all countries, old, new, democratic, authoritarian, large, small - it would be unreasonable to expect a really tight line. In my opinion, it bears out the concept that countries with low taxation will have weak public services, and when public services are weak, we can expect corruption to move into the equation.

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