Effect of Corruption on Tax Revenues in the Middle East

IMF Working Papers, November 1, 2007

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This study estimates the impact of corruption on the revenue-generating capacity of different tax categories in the Middle East.
The authors find that the low revenue collection as a share of GDP in the Middle East compared to other middle-income regions is due in part to corruption.
Taxes requiring frequent interaction between the tax authority and individuals, such as taxes on international trade, appear to be more affected by corruption than most other types of taxation.
The study examines possible reforms of the revenue system and administration to address these issues.

Corruption contributes to lower tax collection as a share of GDP in the Middle East relative to other middle-income regions.
Tax categories differ in susceptibility to corruption; those involving frequent taxpayer–tax authority interactions are more affected.
Taxes on international trade are highlighted as particularly vulnerable to corruption.

To raise more tax revenues while minimizing distortions and maximizing social welfare, governments should:
- Implement reforms that reduce corruption.
- Raise revenues from tax categories that are less susceptible to corruption.
The study examines reforms of the revenue system and revenue administration as potential avenues to increase revenue mobilization in ways that limit the impact of corruption.