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Perceptions of institutional quality and justification of tax evasion

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Abstract

According to the world values survey, citizens justification of tax evasion varies widely across individuals and countries. We explore in this paper how justification of tax evasion covaries across individuals and countries with measures of government quality and the survey respondents own perceptions of the institutional quality. We study three proxies for individuals assessment of institutional quality, namely confidence in government, in civil service and in justice. We find only weak evidence that better assessments of the quality of government institutions are associated with less justification of tax evasion.

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Fig. 1

Source: Own computations based on WVS

Fig. 2

Source: Own computations based on WVS

Fig. 3

Source: Own computations based on WVS

Fig. 4

Source: Own computations based on WVS

Fig. 5

Source: Own computations based on WVS

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Notes

  1. See however Slemrod (2003, 2007), for a critical view on this argument.

  2. The 56 countries considered were: Algeria, Azerbaijan, Argentina, Australia, Armenia, Brazil, Belarus, Chile, China, Taiwan, Colombia, Cyprus, Ecuador, Estonia, Georgia, Ghana, Hong Kong, India, Iraq, Japan, Jordan, Kazakhstan, South Korea, Kuwait, Kyrgyzstan, Lebanon, Libya, Malaysia, Mexico, Morocco, Netherlands, Nigeria, Pakistan, Palestine, Peru, Philippines, Poland, Romania, Russia, Rwanda, Slovenia, South Africa, Zimbabwe, Singapore, Spain, Sweden, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, Egypt, United States, Uruguay, Uzbekistan and Yemen.

  3. We follow the literature on tax morale in recoding this variable. Frey and Torgler (2007), Strei (2013), Torgler (2005), Torgler and Schneider (2007) use a four-point scale. For convenience and ease of interpretation of the results, we use a two point scale as, among others, Alm and Torgler (2006), Daude (2012), Doerrenberg and Peichl (2013), Gerstenblüth (2012), Halla (2012), Heinemann (2010). The cutoff point at the first category is also the most commonly used in the tax morale literature. We provide some justification of this choice below, in Sect. 2.2.

  4. Notice however that the countries included in the WVS are not necessarily fully representative of each region. Countries by region (World Bank classification): East Asia and Pacific: Australia, China, Hong Kong, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand. Europe & Central Asia: Armenia, Azerbaijan, Belarus, Cyprus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Netherlands, Poland, Romania, Russia, Slovenia, Spain, Sweden, Turkey, Ukraine and Uzbekistan. Latin America and Caribbean: Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Trinidad and Tobago, and Uruguay. Middle East and North Africa: Algeria, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Palestine, Tunisia and Yemen. North America: United States. South Asia: India and Pakistan. Sub-Saharan Africa: Ghana, Nigeria, Rwanda, South Africa and Zimbabwe. (3) Countries by income group (World Bank classification): High income: Australia, Chile, Cyprus, Estonia, Hong Kong, Japan, Kuwait, Netherlands, Poland, Russia, Singapore, Slovenia, South Korea, Spain, Sweden, Taiwan, Trinidad and Tobago, United States and Uruguay. Upper middle income: Algeria, Argentina, Azerbaijan, Belarus, Brazil, China, Colombia, Ecuador, Iraq, Jordan, Kazakhstan, Lebanon, Libya, Malaysia, Mexico, Peru, Romania, South Africa, Thailand, Tunisia and Turkey. Lower middle income: Armenia, Egypt, Georgia, Ghana, India, Kyrgyzstan, Morocco, Nigeria, Pakistan, Palestine, Philippines, Ukraine, Uzbekistan and Yemen. Low income: Rwanda and Zimbabwe. Data is not weighted by the population of each country (all countries have the same weight).

  5. Cruces et al. (2013) show evidence of systematic biases in this regard, and explain them in terms of groups of reference.

  6. The regressors “Income” and “Pride” are not standard in this literature, though.

  7. Columns (1)–(4) in the first panel are just the odds ratio version of the regressions in Table 2. Because the WVS is an unbalanced panel, the observations included in a regression may vary when a regressor is added. To avoid this sort of missing data effects in our estimations, we estimated all models in each panel using the same sample, i.e. the largest sample that contains all the regressors used in any estimation in each panel.

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Authors and Affiliations

  1. Departamento de Economía, FCS, Universidad de la República, Constituyente 1502, CP 11200, Montevideo, Uruguay

    Alvaro Forteza & Cecilia Noboa

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  1. Alvaro Forteza
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  2. Cecilia Noboa
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Correspondence to Alvaro Forteza.

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We received useful comments to a previous paper, of which this is an offspring, from participants at the Jornadas del Banco Central del Uruguay; Jornadas internacionales de finanzas públicas (Universidad Nacional de Córdoba, Argentina), the 16th SAET Conference on Current Trends in Economics 2016, PET 16 Rio (Association for Public Economic Theory), the 2016 RIDGE-LACEA workshop on political economy, the 2016 LACEA-LAMES meeting and the 2017 World Congress of the International Economic Association. Comments received at seminars at UdelaR, Universidad de San Andrés, UCEMA and UCUDAL were also very useful in revising this paper. This paper also benefited from comments received from CPEC anonymous referees and from the editor, professor Roger Congleton. The usual disclaimer applies.

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Forteza, A., Noboa, C. Perceptions of institutional quality and justification of tax evasion. Const Polit Econ 30, 367–382 (2019). https://doi.org/10.1007/s10602-019-09287-1

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