Developing Alternative Frameworks for Explaining Tax Compliance by Alm James;Martinez-Vazquez Jorge;Torgler Benno;

Author:Alm, James;Martinez-Vazquez, Jorge;Torgler, Benno;
Language: eng
Format: epub
Tags: Economics, Finance, Business & Industry
Publisher: Taylor & Francis Group
Published: 2010-05-31T00:00:00+00:00

Conclusions

Our primary intention in this chapter was to verify the correlation between tax compliance and tax morale. A central question in the tax compliance literature is why so many people pay their taxes even though fines and audit probability are low. One key determinant might be tax morale – i.e., the intrinsic motivation to pay taxes. Interestingly, tax morale is not often discussed in the tax compliance literature, and is seen as a residual explanation without referring to the factors that shape tax morale. We have used a variety of methodologies to explore this aspect in detail. This allows us to take into account the fact that every method has its pros and cons, especially when investigating tax evasion, which by its nature is concealed. The results are very consistent. Tax morale has a strong positive effect on tax compliance regardless of which methodology is used. Thus, if tax morale seems to be a key determinant in enhancing tax compliance, there are a variety of policies besides coercion that will help to increase tax compliance. Therefore, to derive some policy recommendation from these results it was necessary to go a step further and explore the determinants of tax morale. We focused predominantly on the impact of governance quality. Our results show that the quality of political institutions has a strong observable effect on tax morale. It is clear that not only the overall index but also the sub-factors of voice and accountability, rule of law, political stability and absence of violence, regulatory quality, and control of corruption exercise a strong influence on tax morale. Moreover, trust in the justice system and the parliament also has a highly significant positive effect on tax morale.

In general, our analysis highlights the relevance of extending the standard economic theory of tax evasion, which is based on the narrow principle of homo

Table 8.7 Robustness check

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