JED, Vol. 18, No.3, December 2016, pp. 5-29 | DOI: 10.33301/2016.18.03.01
The Effect of Taxation and Corruption on Firm Growth: An Empirical Investigation for Vietnam
Abstract:The aim of this study is to analyze empirically the impact of taxation and corruption on the
growth of manufacturing firms in Vietnam. The study employed pooled OLS estimation and then
instrument variables with fixed effect for the panel data of 1377 firms in Vietnam from 2005 to
2011. These data were obtained from the survey of the Central Institute for Economic Management
and the Danish International Development Agency. The results show that both taxation and
corruption are negatively associated with firm growth measured by firm sales adjusted according
to the GDP deflator. A one-percentage point increase in the bribery rate is linked with a reduction
of 16,883 percentage points in firm revenue, over four and a half times bigger than the effect of
a one-percentage point increase in the tax rate. From the findings of this research, the author
recommends the Vietnam government to lessen taxation on firms and that there should be an
urgent revolution in anti-corruption policies as well as bureaucratic improvement in Vietnam.
Keywords:Bribery rate; corruption; instrument variable; fixed–effect method; panel data; small and medium enterprises; taxation; Vietnamese firms.