The Relation between Corruption and Tax Revenues: An Assessment of Transitional economies

Corruption affects many economic, political, and social indicators directly and indirectly. One of the economic costs of corruption is a decrease in tax revenues. In societies where corruption is high, administrators taking bribes for excess revenue may reduce tax administration performance. Therefore, corruption and taxes are closely related to each other. This study analyzes the impact of corruption on different tax types in 6 selected transition economies (Estonia, Czech Republic, Hungary, Poland, Latvia and Slovak Republic) in the 1998-2021 and Bootstrap Panel Granger causality method. According to this study, there is unidirectional causality from personal income tax to corruption in Slovakia, from corporate tax and VAT to corruption in Poland, from VAT and SCT to corruption in Hungary, and from VAT to corruption in Latvia. Additionally, there is a bidirectional causal relationship from corruption to personal income tax in Poland and from corruption to corporate tax in the Czech Republic and Hungary, but there is no causal relationship between corruption and VAT and SCT. Personal income and corporate taxes, which require a strong relationship between tax administration and taxpayers, are more affected by corruption than taxes such as VAT and SCT.