To Pay or Not to Pay? Business Owners' Tax Morale: Testing a Neo-Institutional Framework in a Transition Environment (original) (raw)
Related papers
An evaluation of the shadow economy in Baltic states: a tax morale perspective
To explain the shadow economy in the Baltic states of Estonia, Lithuania and Latvia, this paper evaluates the relationship between the shadow economy and tax morale. Viewing tax morale as a measure of the symmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality), the proposition is that the lower the tax morale (i.e., the greater the asymmetry between state morality and civic morality), the greater is the propensity to participate in the shadow economy. To evaluate this, a 2013 survey is reported involving 3,036 face-to-face interviews in these three Baltic nations. Using ordered logistic regression analysis, the finding is that the lower is the tax morale of individuals, population groups and countries, the greater is the propensity to participate in the shadow economy. The paper then explores the implications for theorising and tackling the shadow economy.
Firm-level determinants of tax evasion in transition economies
Business tax evasion is an important issue for governments. Yet the factors that determine business tax evasion have not been sufficiently examined in the literature in general, and in transition contexts in particular. To address this gap, this study uses the WB/EBRD Business Environment and Enterprise Performance Survey (BEEPS) database with a sample of over 12,692 firms from 26 transition economies. Applying various modelling strategies, we argue that tax evasion is a function of firm-level and institutional-level variables. We contribute to the literature by providing robust evidence showing that the perceived tax burden has a positive impact on tax evasion. We also find that the tax evasive behaviour of firms is positively influenced by low trust in government and in the judicial system as well as by higher perceptions of corruption and higher compliance costs. We find that smaller firms, individual businesses and firms in sectors that are less visible to the tax administration are more likely to get involved in evasive behaviour. Overall, institutional factors play an important role in determining firms' tax evasion behaviour in transition economies. This finding has important policy implications.
An institutional theory of the informal economy: some lessons from the United Kingdom
Purpose – The purpose of this paper is to propose a new way of explaining participation in the informal economy as resulting from the asymmetry between the codified laws and regulations of a society's formal institutions (government morality) and the norms, values and beliefs of the population that constitute its informal institutions (societal morality). The proposition is that the greater the asymmetry between government morality and societal morality, the greater is the propensity to participate in the informal economy. Design/methodology/approach – To evaluate this institutional asymmetry theory, the results are reported of 1,306 face-to-face interviews conducted during 2013 in the UK. Findings – The finding is a strong correlation between the degree of institutional asymmetry (measured by tax morale) and participation in the informal economy. The lower the tax morale, the greater is the propensity to participate in the informal economy. Using ordered logistic regression analysis, tax morale is not found to significantly vary by, for example, social class, employment status or wealth, but there are significant gender, age and spatial variations with men, younger age groups, rural areas and Scotland displaying significantly lower tax morale than women, older people, urban areas and London. Practical implications – Rather than continue with the current disincentives policy approach, a new policy approach that reduces the asymmetry between government morality and societal morality is advocated. This requires not only changes in societal morality regarding the acceptability of participating in the informal economy but also changes in how formal institutions operate in order for this to be achieved. Originality/value – This paper provides a new way of explaining participation in the informal economy and reviews its consequences for understanding and tackling the informal economy in the UK.
Analyzing Determinants of Tax Morale based on Social Psychology Theory: Case study of Iran
iranian economic review, 2016
While economic deterrence models are fully based on maximizing economic utility; social psychology models explain human behavior by examining the underlying attitudes, norms and beliefs. Tax morale is defined as the intrinsic motivation to pay taxes. However, determinants of tax morale need to be investigated for a more comprehensive understanding of tax morale. In this paper we analyze the most important determinants of tax morale in Iran using data from World Values Surveys (WVS). Determinants of tax morale are categorized into four main groups: social capital, conditional cooperation, demographic factors and economic situation of the respondents. Estimating ordered probit model, we find that conditional cooperation and economic situation have the most important effects on tax morality. However, some of the social capital variables like importance of politics and religion and demographic factors like gender and marital status don’t have significant effect on tax morale in Iran.
Purpose – The purpose of this paper is to advance a new explanation for cross-country variations in the participation of small businesses in the informal economy. Drawing upon institutional theory, it proposes that the greater the asymmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality), the greater is the propensity of small businesses to participate in the informal economy. To analyse this, the extent to which small businesses evade payroll taxes by paying employees an undeclared (envelope) wage in addition to their official declared salary is analysed. Design/methodology/approach – To evaluate this, data are reported from a 2013 Eurobarometer survey involving 5,174 face-to-face interviews with employees in small businesses across the 28 member states of the European Union (EU-28). Findings – The finding is that small businesses display a greater propensity to engage in this informal wage practice in countries where there is a higher degree of asymmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality). A multi-level logistic regression analysis reveals these to be countries which have lower qualities of governance, lower levels of taxation and intervention in the labour market and less effective social transfer systems. Research limitations/implications – The major limitation of this study is that it has only examined whether employees in small businesses receive informal wages. Future cross-country surveys should analyse a wider range of ways in which small businesses participate in the informal economy such as under-reporting turnover. Originality/value – This is the first known analysis of cross-country variations in the participation of small businesses in the informal economy.
TACKLING THE INFORMAL ECONOMY IN THE EUROPEAN UNION: A SOCIAL ACTOR APPROACH
In recent years, participants in the informal economy have started to be viewed less as rational economic actors who engage in the informal economy when the pay-off is greater than the expected cost of being caught and punished, and more as social actors who engage when their tax morale (i.e., motivation to pay taxes) is low. To evaluate this new social actor approach and the implications for tackling the informal economy, this paper reports evidence from 41,689 face-to-face interviews conducted across the European Union. Multilevel logistic regression analysis reveals a strong association between participation in the informal economy and the level of tax morale. Finding that higher tax morale (and thus lower participation in the informal economy) is strongly correlated at the country-level with greater levels of state intervention and at the individual-level with characteristics such as gender, age, education and employment status, the outcome is to confirm a structuralist political economy explanation and refute the modernization and neo-liberal explanations and remedies, as well as to uncover the importance of some policy solutions not considered until now, including older citizens mentoring of younger people, and improving women's participation in the labour force.
Family Ties and Underground Economy
2016
This paper reports empirical evidence supporting the hypothesis that family ties should be listed among the causes of tax evasion. In societies where the power of the family is very high, the quality of public institutions tends to be low. This connection shapes the behavior of taxpayers and generates underground economy. The econometric analysis is based on linear panel data models, and a new dataset that combines data on personal values, social capital, and tax morale, in combination with an index of the shadow economy. The final results show that countries where family ties are stronger also exhibit higher underground economy.
The aim of this paper is to map the spatial variations in the size of the shadow economy within Brussels. Reporting data provided by the National Bank of Belgium on the deposit of high denomination banknotes across bank branches in the 19 municipalities of the Brussels-Capital Region, the finding is that the shadow economy is concentrated in wealthier populations and not in deprived or immigrant communities. The outcome is a call to transcend the association of the shadow economy with marginalized groups and the wider adoption of this indirect method when measuring spatial variations in the shadow economy.