Why Pay Our Fair Share? How Perceived Influence Over Laws Affects Tax Evasion
44 Pages Posted: 5 Sep 2017 Last revised: 4 Oct 2017
Date Written: August 30, 2017
We examine how the relation between taxpayers and their government affects tax evasion. Specifically, we examine how perceived influence over government policymaking affects taxpayers’ tax evasion decisions. We argue that taxpayers 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 taxpayers evade more tax when foreign firms have more perceived influence over domestic government policymaking. Interestingly, we document lower tax evasion when international development agencies and foreign governments influence domestic government policymaking, and that this effect is decreasing in domestic government effectiveness, suggesting that foreign government or international development agency involvement may result in the implementation of best practices that increase the quality of the domestic government when domestic government effectiveness is otherwise low.
Keywords: Tax Evasion, Tax Morale, Quality of Government
JEL Classification: H26
Suggested Citation: Suggested Citation