Tax me, but don’t drown me in regulations : Understanding differences in corruption across the countries of Europe

Abstract

Differences in corruption perception across the countries of Europe are marked and persistent over time. This study seeks to explain these differences in the countries of both the European Union and the European Free Trade Association during 2007–2017. The core hypothesis is that the style of government intervention in the economy –rather than the size of government– is the main explanatory factor for the differences. To test this hypothesis, the empirical analysis disentangles the effects of the two main government tools for intervention in the economy: taxation and regulation. The main result is that the fiscal burden does not consistently present a significant relationship with corruption. In contrast, the regulatory burden associated with excessive red tape is a strong driver of corruption, because a consistent and significant positive association is found. Furthermore, differences in legal origins, history, democratic experience and several economic factors contribute to explaining differences between European countries.