Corruption and related activities have been studied with substantial fervor in the last few decades in economic sciences. There have been models proposed, empirical studies to measure outcomes and policies enacted to tackle the behemoth that is corruption. Yet, significant gaps still exist in our understanding of the nature of the problem. Consequently, policies that are enacted to tackle corruption or corruption related activities are sometimes ineffective.

This dissertation contains two chapters, each shedding some light on the nature and consequence of the problem of corruption and related activities. The first chapter, titled Corruption at different levels of government: what causes its incidence and how it impacts economic aggregates and social welfare presents a theoretical model of corruption where optimum enforcement is selected by an independent, incorruptible benevolent monitoring agent, such that the social loss from corruption is minimized. The discussion is presented in a system where private agents use resources to engage in self-protection from and self-promotion of corruption. Policy proposals are made factoring in different types of punishment regimes and different types of public good valuation.

The second chapter, titled Regulations, tax evasion and enforcement: analyzing the Indian Demonetization Event is an analysis of a policy enacted by the Government of India to tackle tax evasion. While tax evasion by private citizens is different from the act of corruption by public officials, there exists a connection between the two. This link is the fact that evaded taxes can be used to potentially fund illegal activities, including but not limited to, bribery of public officials - thus tax evasion becomes a corruption related activity. In this chapter, the focus is on the policies that enabled the implementation of the Indian Demonetization and their effect on tax evasion. We discuss if policies which essentially increase the cost of demanding money actually deter private agents from evading taxes. In addition, we investigate different regimes of monitoring by the government to deter evasion and discuss if the aforementioned policies reduce evasion under different types of deterrence spending and under productivity shocks to the economy. To focus on the regulations and the act of evasion, we abstract from incorporating bribery in this chapter.

Both the chapters provide policy implications. The first chapter shows the importance of government size and displays the mechanism by which corruption outcomes can differ between different levels of government in the same country. The second chapter gives an understanding of the appropriate time to implement regulations on money demand such that tax evasion can be controlled.