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Public Good Provision: A Tale of Tax Evasion and Corruption

Research output: Working paper

Publication date3/07/2020
Place of PublicationLancaster
PublisherLancaster University, Department of Economics
<mark>Original language</mark>English

Publication series

NameEconomics Working Papers Series


We develop a model that links tax evasion, corruption, and public good provision.
In our model, citizens pay or evade taxes into the public fund, which a corrupt
governor redistributes. Each citizen forms expectations about the amount of public goods the governor should provide. After observing the actual level of public goods, a citizen punishes the governor if this level is below his expectations.
We describe three types of equilibria: tax evasion, efficient public good provision, and symmetric mixed-strategy. We show that the highest expectations can lead to no free riding (tax evasion) and the efficient level of public good provision even with the corrupt governor and without punishment for tax evasion.