Impact of corruption on tax revenues: The example of European Union transition economies

From past to present, taxes, which are a important source to supply governments public needs, confronts us a social, political and economic phenomenon. These social, political and economic phenomena, playing a key role on the determination of tax revenues, are decisive on the taxes, directly or indirectly. Many economic factors such as financial development, growth, economic freedom, tax rate and corruption create influence on tax revenues. Corruption, which plays a significant role on determination of tax revenues, has become a common problem of the globalizing world. Conceptually, described as abusing public power or sources for private benefits, corruption has many economic effects.In this study, the correlation between corruption and tax revenues in 11 EU transition economies in 2003-2015 period was analyzed using Westerlund and Edgerton (2007) cointegration test and Emirmahmutoğlu and Köse (2011) causality test. As a result of the study, it has been found that there is a long negative relationship between corruption and tax revenues. In addition, it has been identified that there is meaningful and bi-directional causality relation between corruption and tax revenues. Keywords: Corruption, Tax Revenues, Panel Data Analysis