A group of economists studied systemic corruption in Pakistan

Along with the opportunities provided by corruption, in developing countries it also imposes responsibilities on the bribe takers. A group of economists, having studied systemic corruption in Pakistan, stated that the combination of responsibilities and opportunities of corrupt officials create there an almost parallel tax system of quasi-tax redistribution. According to their assumption, it is its existence that reduces the possibilities of official taxation.

Developed corruption in poor and developing countries, which is well known to economists, often corresponds not only to a high share of the shadow sector in the economy, but also to low tax rates with a fairly large bureaucracy. A team of economists from the US (Shan Aman-Rama and Sandeep Sukhtankar, University of Virginia) and UK (Clement Minaudier, City University London), studying the workings of this kind of economy for an article in the NBER series using the example of Pakistan, show that the possibility of raising both nominal rates taxation and gross tax collections are limited – corrupt officials in Pakistan have not only opportunities for personal enrichment, but also social obligations. De facto, apparently, we should be talking about a second redistribution system, operating in parallel to the tax one.

Previously, researchers have discovered the same kind of “parallel tax systems” in the police in India and in African countries. Aman-Rama and colleagues conducted anonymous personal surveys of about 750 major officials in Pakistan, literally confirming the existence of such a “second taxation” system: in the survey, 82% agreed that they participate in the financing of certain types of public goods – hospitals, flood control structures , infrastructure repairs, etc. Presumably, about 15% of officials’ salaries are spent on these purposes (the share spent from bribes in Pakistan for these purposes cannot be assessed directly for obvious reasons). According to researchers, the volume of quasi-tax redistribution of funds is, at the lower limit, about 4.5% of the corresponding expenditures of the government of Pakistan. At the same time, 90% of surveyed officials determine the need to take bribes precisely by social obligations – the need to finance public expenses for which there are not enough public funds.

In a particular case, Aman-Rama and colleagues examined the cost structure of flood relief in Pakistan: 61% of local officials surveyed stated that they finance flood relief efforts from their own pockets, 25% admitted that they supply food to flood victims, and 82% stated that they provide logistics and transportation for such events.

The authors found out the reasons why bribe-takers spend the already received corruption income for these purposes from the ordinary population. Mainly, residents of Pakistan believe that the system is driven by career considerations of bribe takers: they were noted by 76% of respondents, 20% pointed to social pressure; altruism or religious goals are not mentioned as a motivating reason by anyone; 39% of those surveyed by Aman-Rama and colleagues believe that they need a parallel system in which bribe takers have social obligations – most of the bribes are still appropriated.

Dmitry Butrin