Raising Wages as a Strategy to Reduce Corruption

Abstract

This paper examines whether raising the salaries of government tax auditors reduces their incentive to accept bribes. It evaluates an optimal tax structure and economic welfare under conditions of perfect and imperfect information in relation to conditions for bribery. The major policy implication of this paper is that it is not necessarily desirable to increase salaries as an anticorruption measure. Even if government can reduce corruption by improving civil servants’ pay, obtaining funds to do so by raising the income tax will worsen economic welfare, based on the optimal tax structure.