Why Pay Our Fair Share? How Perceived Influence Over Laws Affects Tax Evasion

The Journal of the American Taxation Association, Vol. 42, No. 1, Spring 2020

Kelley School of Business Research Paper No. 17-66

Posted: 5 Sep 2017 Last revised: 18 Mar 2020

See all articles by Paul Mason

Paul Mason

Baylor University

Steven Utke

University of Connecticut - Department of Accounting

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting

Date Written: May 15, 2019

Abstract

We examine how the relation between taxpayers and their government affects tax evasion. Specifically, we examine how perceived influence over government policymaking affects firms’ decisions to evade tax. We argue that firms are less willing to comply with tax laws when they perceive the influence over their government to be unfavorable to them or the result of an unfair policymaking process. Consistent with this argument, we find that firms evade more tax when other domestic firms have more perceived influence over domestic government policymaking. This suggests a potential negative externality of lobbying: higher tax evasion by other firms. However, government effectiveness or lack of corruption eliminates the positive relation between evasion and perceived influence over policymaking. Our study is the first to document the relation between perceived influence over government policymaking and tax evasion, and our results suggest that limiting domestic firms’ influence over policymaking could help governments decrease tax evasion.

Keywords: Tax Evasion, Tax Morale, Quality of Government, Perceived Influence, Procedural Fairness

JEL Classification: H26

Suggested Citation

Mason, Paul and Utke, Steven and Williams, Brian, Why Pay Our Fair Share? How Perceived Influence Over Laws Affects Tax Evasion (May 15, 2019). The Journal of the American Taxation Association, Vol. 42, No. 1, Spring 2020, Kelley School of Business Research Paper No. 17-66, Available at SSRN: https://ssrn.com/abstract=3030127 or http://dx.doi.org/10.2139/ssrn.3030127

Paul Mason

Baylor University ( email )

Waco, TX 76798
United States

Steven Utke

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Brian Williams (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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