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Abstract

This study is intended to provide the clue regarding the determinants of compliance with environmental tax under imperfect monitoring and the presence of bribery, motivated by the case of Indonesia. The study is expected to contribute on environmental policy and tax compliance literatures, particularly by examining the impact of financial reward under the presence of bribery, aside of others conventional compliance instruments such as tax rate, audit, and sanction. In addition to financial reward, this study also incorporates the bribe explicitly as a determinant of compliance. The study employs theoretical and experimental approaches. While theoretical analysis find that the compliance will decrease with tax rate and increase with audit, sanction, financial reward, and the bribe rate; the experiment findings indicate that the impact of each determinant are vary according to the existence of bribery. Despite the difference, both approaches show that the bribery indeed hampers the compliance on environmental tax. The bribery encourages the polluting firms to aggressively evade the environmental tax as the tax rate increase and curbs the positive impact of financial reward in enhancing the compliance.

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