Working Paper

Taxation, Corruption and the Exchange Rate Regime

Carsten Hefeker
CESifo, Munich, 2009

CESifo Working Paper No. 2561

The paper analyzes the relation between institutional quality, such as corruption, in a country and its monetary regime. It is shown that a credibly fixed exchange rate to a low inflation country, like a currency board, can reduce corruption and improve the fiscal system. A monetary union, however, has ambiguous effects. I find that there is convergence between countries with regard to the level of corruption.

CESifo Category
Monetary Policy and International Finance
Keywords: exchange rate regime, monetary policy, fiscal policy, seigniorage, corruption, developing and transition countries
JEL Classification: D720,E630,F330