This paper aims to examine the impact of petty tax corruption on the private sector
development in Vietnam. It is motivated by two separate but related considerations. First,
despite the seriousness of the phenomenon of corruption, there is a paucity of rigorous
empirical studies of corruption, particularly tax corruption, in Vietnam. Secondly, ineffective
control of corruption is viewed as a cause of Vietnam’s recent total factor productivity (TFP)
slowdown or its poor industrial policy, both of which may hamper Vietnam’s progress as a
low middle-income country. Without some understanding on the impact of tax corruption on
the economy, it may not be possible to devise the most effective anticorruption policy and
measures.
After a brief literature review that focuses on tax corruption, various conceptual issues
relating to tax corruption are discussed and clarified. The extent of petty tax corruption in
Vietnam is then discussed, followed by an examination of findings and implications of recent
studies on how tax corruption impacts on private sector development in Vietnam. Despite
perception and evidence of widespread petty tax corruption, Vietnam ranks very highly both
in terms of tax collection and tax effort. Not unexpectedly, the impact of tax corruption is
mixed in the sense that empirical evidence lends credence to both “sanding the wheels” and
“greasing the wheels” hypotheses. Finally, some policy recommendations for combating tax
corruption are offered.