Wages and Sanctions against Hierarchical Corruption

The general aim of this paper is to contribute to the study of factors that decrease corruption in the public sector and especially in tax administration. A matter of particular interest will be the effects of raising civil servants’ wages and penalties on the behavior of agents in case of tax evasion. We will also look into the role of civil society and the dismissal sanction in a country of high level of unemployment in the fight against corruption. Using a model referring to a typical agency problem, we will demonstrate how the coalition among civil servants and taxpayers may be broken in order to curb tax evasion and the incidence of corruption.