Introduction
Determinants of Tax Morale: A Framework
Reference | Dependent variable | Institutional dimensions | Sample and econometrics | Source of data | Findings |
---|---|---|---|---|---|
Konrad and Qari (2012) | Tax compliance: “How important is it never to try to evade taxes” | Patriotism | Individuals in eight countries. OLS and ordered probit | International social survey programme 2004 and 2003 | Positive association between tax compliance and patriotism |
Torgler (2012) | Tax morale: always or never justified—cheating on tax payments if you get the chance | Trust in government; trust in justice system; trust in EU; governance quality; religiosity | Individuals in ten Eastern European countries that joined the European Union by 2007. Weighted ordered probit | European values survey 1999/2000 and 2008 | All institutional variables positively related to tax morale |
Heinemann (2011) | Tax morale: always or never justified—cheating on tax payments if you get the chance | Economic crisis; generosity of welfare system; confidence in parliament; patriotism | Individuals in 20 OECD countries. Probit | World values survey—four waves from 1981 to 2003 | Presence of economic crisis and more generous welfare systems are associated with lower tax morale and the two interact to reinforce this relationship. Confidence in parliament and patriotism is positively related to tax morale |
Hug and Spörri (2011) | Tax morale: always or never justified—cheating on tax payments if you get the chance. | Trust in parliament, government, legal system; satisfaction with political system and incumbents; referendum required for taxes | 27 countries. Multi-level ordered probit | World values survey 1995–1997 | Some evidence that trust positively related to tax morale. Incumbent satisfaction is positively related to tax morale. Referendum institutions do not have a direct effect on the level of tax morale across countries |
Marien and Hooghe (2011) | Legal permissiveness—scale from whether it is always or never justified to cheat on tax, pay cash to avoid sales tax and claim benefits to which you are not entitled | Political trust—a scale made from trust in parliament, the justice system, the armed forces and the police; religiosity; moral conservatism | Individuals in 33 European countries. Multi-level multinomial logit | European values survey 1999–2001 | Political trust, religiosity and moral conservatism are negatively related to legal permissiveness |
Torgler et al. (2010) | Tax morale: always or never justified—cheating on tax payments if you get the chance | Quality of governance index (World Bank); trust in parliament, trust in justice system | Individuals in 30 European countries. Ordered probit model | European value survey 1999/2000 | All institutional dimensions significant |
Lago-Peñas and Lago-Peñas (2010) | Tax morale: “citizens should not cheat on their taxes” | Trust in politicians; satisfaction with democracy; ethnic fractionalisation | Individuals in 17 European countries. Multi-level weighted ordered logistic regression | European social survey 2004–2005 | Tax morale is stronger with greater trust in politicians and greater satisfaction with democracy. Ethnic fractionalisation reduces tax morale |
Martínez-Vázquez and Torgler (2009) | Tax morale: always or never justified—cheating on tax payments if you get the chance | Trust in the parliament; religiosity; national pride | Individuals in Spain. Weighted ordered probit estimation | World values survey and European values survey: 1981, 1990, 1995 and 1999/2000 | All institutional variables are statistically significant and positively related to tax morale |
Blanthorne and Kaplan (2008) | Ethics of underreporting. Scale created from items: underreporting against principles; morally wrong; not ethically wrong; dishonest; and not feeling guilty if underreport | Social norms regarding underreporting; opportunity to underreport | Individuals in USA with different levels of opportunity to evade tax | Own survey | Social norms that underreporting unethical judge underreporting as more unethical. Low opportunity taxpayers, who cannot easily benefit personally from evasion, judged evasion as more unethical than high opportunity taxpayers |
Frey and Torgler (2007) | Tax morale: always or never justified—cheating on tax payments if you get the chance | Trust in justice system, parliament; satisfaction with democracy; institutional quality | Individuals in 30 West and East European countries. Weighted ordered probit; clustered standard errors | European values survey 1999/2000 | All institutional variables are positively related to tax morale |
Torgler and Schneider (2007) | Tax morale: always or never justified—cheating on tax payments if you get the chance | Trust in political institutions and government; attitudes towards democracy; direct democracy; deterrence factors: fine rate and audit probability; national pride; church attendance; language | Individuals in Belgium, Spain and Switzerland. Weighted ordered probit estimation | World values survey 1995–1997 and the European values survey 1999–2000 | All trust variables, pro-democratic attitudes, national pride are positively related to tax morale. Direct democracy positively related to tax morale in Switzerland, but deterrence factors have little effect. Religiosity is only significant in Belgium and Switzerland. There are some statistically significant differences in tax morale across different language groups |
Normative Perspective: Evaluation of the Government
The Theoretical Framework: The Normative Perspective
The Transition Context and the Normative Perspective: Evaluation of Government
Cognitive–Cultural Perspective: National Identification
The Theoretical Framework: The Cognitive Perspective
The Transition Context and the Cognitive Perspective: National Identity
Regulatory/Instrumental Perspective: Deterrence
The Theoretical Framework: The Regulatory Perspective
The Transition Context and the Regulatory Perspective
Methods
Data
Variable | Description | Mean | Median | SD | Min | Max |
---|---|---|---|---|---|---|
Tax morale (dependent variable for OLS and ordered probit ten models) | Please tell me for the following statement whether you think it can always be justified, never be justified or something in between: “Cheating on tax if you have the chance”: 1 means you think it is always justifiable; 10 means you think it is never justifiable; and if your views fall somewhere in between you can choose any number in between | 6.10 | 6 | 2.63 | 1 | 10 |
Confidence in government | How much confidence do you have in the government? 4 = a great deal, 3 = quiet a lot, 2 = not very much, 1 = none at all (WVS) | 2.10 | 2 | 0.95 | 1 | 4 |
Confidence in tax authorities | Scale formed from average answer to 3 statements: The state revenue service: (1) is corrupt (reverse coded); (2) administers the tax system fairly; (3) is generally honest in the way it deals with people: 5 = strongly agree 1 = strongly disagree | 3.14 | 3.33 | 0.96 | 1 | 5 |
Community belonging | Being a member of the Latvian community is important to me: 5 = strongly agree 1 = strongly disagree | 4.53 | 5 | 0.84 | 1 | 5 |
Chances of being caught | Scale formed by adding respondent’s assessment of chance of being caught for each type of underreporting—business incomes, number of employees, official salary levels. Chance of firm being caught: 1 = about 0%, 2 = about 25%, 3 = about 50%, 4 = about 75%, 5 = almost certain, 100% | 3.36 | 3 | 1.06 | 1 | 5 |
Severity of punishment | If a firm did get caught seriously underreporting how severe are the typical consequences: 1 = not severe at all, minimal impact, 2 = it will suffer some financial penalties, 3 = it will suffer serious financial penalties and become unprofitable, 4 = it will suffer serious financial penalties and may go out of business, 5 = it will go out of business | 3.10 | 3 | 0.90 | 1 | 5 |
Female | Male = 0, female = 1 | 0.55 | 1 | 0.50 | 0 | 1 |
High education | Education: BA or higher = 1 otherwise = 0 | 0.29 | 0 | 0.45 | 0 | 1 |
Age | Age of respondent | 42.53 | 40 | 9.98 | 23 | 75 |
Latvian | Ethnicity of respondent Latvian = 1, other ethnicity = 0 | 0.79 | 1 | 0.41 | 0 | 1 |
No. of employees | Number of employees in 2010 | 14.11 | 5 | 28.80 | 1 | 245 |
Capital city | Firm based in capital Riga = 1, based elsewhere in Latvia = 0 | 0.56 | 1 | 0.50 | 0 | 1 |
Foreign share | Some foreign share in ownership | 0.03 | 0 | 0.18 | 0 | 1 |
Services | 1 or 0 | 0.57 | 1 | 0.50 | 0 | 1 |
Manufacturing | 1 or 0 | 0.09 | 0 | 0.28 | 0 | 1 |
Wholesale trade | 1 or 0 | 0.04 | 0 | 0.19 | 0 | 1 |
Retail trade | 1 or 0 | 0.19 | 0 | 0.39 | 0 | 1 |
Other sector | 1 or 0 | 0.10 | 0 | 0.30 | 0 | 1 |
Performance 2009–2010 | Average of approximate % change in three variables: net sales profit, sales turnover, and employment in 2010 compared to 2007. Each of these variables is measured on a scale from 1 to 5 = considerably increased: more than +40%, 4 = increased: up to +40%, 3 = remained the same, 2 = decreased: down to −40%, 1 = considerably decreased: more than −40% | 2.55 | 2.3 | 0.83 | 1 | 5 |
Performance 2007–2010 | Question same as above except compared to 2007 | 2.24 | 2 | 0.85 | 1 | 5 |
Estimator and Specifications
Value | Meaning | WVS value | Frequency | Percent |
---|---|---|---|---|
1 | Tax evasion justifiable | 1–3 | 41 | 18.6 |
2 | 4–7 | 104 | 47.3 | |
3 | Tax evasion not justifiable | 8–10 | 75 | 34.1 |
N = 220 |
Results
Visualising the Results
Model 1 | Model 2 | Model 3 | Model 4 | Model 5 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
OLS | OP | OLS | OP | OLS | OP | OLS | OP | OLS | OP | |
Trust in government | 0.17** | 0.18* | 0.15* | 0.14 | 0.18* | 0.15+ | 0.18* | 0.15+ | ||
(−0.17) | (−0.08) | (−0.19) | (−0.09) | (−0.20) | (−0.09) | (0.20) | (0.09) | |||
Trust in tax administration | 0.15+ | 0.23* | 0.15+ | 0.23* | 0.18* | 0.25* | 0.17* | 0.24* | ||
(−0.20) | (−0.10) | (−0.22) | (−0.11) | (−0.23) | (−0.12) | (0.23) | (0.12) | |||
Community belonging | 0.17** | 0.26** | 0.13+ | 0.23* | 0.12 | 0.17 | 0.13+ | 0.20+ | ||
(−0.20) | (−0.10) | (−0.21) | (−0.11) | (−0.25) | (−0.12) | (0.24) | (0.12) | |||
Likelihood caught | 0.08 | 0.12 | 0.14+ | 0.19* | 0.03 | 0.11 | 0.04 | 0.13 | ||
(−0.17) | (−0.08) | (−0.19) | (−0.09) | (−0.22) | (−0.11) | (0.21) | (0.11) | |||
Severity of punishment | 0.15* | 0.21* | 0.15* | 0.21* | 0.19* | 0.26* | 0.18* | 0.25* | ||
(−0.18) | (−0.09) | (−0.20) | (−0.09) | (−0.21) | (−0.10) | (0.21) | (0.10) | |||
Female | −0.03 | −0.14 | −0.03 | −0.15 | −0.05 | −0.16 | −0.08 | −0.13 | −0.08 | −0.14 |
(0.38) | (0.17) | (−0.35) | (−0.17) | (−0.38) | (−0.19) | (−0.41) | (−0.20) | (0.41) | (0.20) | |
Age | 0.09 | 0.01 | 0.07 | 0.01 | 0.06 | 0.00 | 0.07 | 0.00 | 0.07 | 0.00 |
(0.02) | (0.01) | (−0.02) | (−0.01) | (−0.02) | (−0.01) | (−0.02) | (−0.01) | (0.02) | (0.01) | |
Higher education | 0.09 | 0.25 | 0.02 | 0.09 | 0.03 | 0.04 | 0.05 | 0.15 | 0.04 | 0.11 |
(0.42) | (0.18) | (−0.40) | (−0.19) | (−0.43) | (−0.21) | (−0.46) | (−0.22) | (0.46) | (0.22) | |
Ethnic Latvian | 0.06 | 0.03 | 0.01 | −0.15 | −0.00 | −0.17 | 0.03 | −0.11 | 0.02 | −0.15 |
(0.43) | (0.19) | (−0.45) | (−0.22) | (−0.48) | (−0.24) | (−0.49) | (−0.25) | (0.50) | (0.25) | |
No. of employees | −0.05 | −0.00 | −0.07 | 0.00 | −0.06 | 0.00 | −0.05 | 0.00 | −0.06 | −0.00 |
(0.00) | (0.00) | (0.00) | (0.00) | (0.00) | (0.00) | (0.00) | (0.00) | (0.00) | (0.00) | |
Capital city | 0.05 | 0.00 | −0.00 | −0.10 | −0.05 | −0.24 | −0.02 | −0.25 | −0.02 | −0.24 |
(0.39) | (0.17) | (−0.39) | (−0.18) | (−0.42) | (−0.19) | (−0.44) | (−0.20) | (0.44) | (0.20) | |
Foreign share | 0.04 | 0.19 | 0.02 | 0.1 | 0.03 | 0.15 | 0.07 | 0.53 | 0.03 | 0.27 |
(0.55) | (0.34) | (−0.40) | (−0.29) | (−0.44) | (−0.30) | (−0.63) | (−0.38) | (0.45) | (0.34) | |
Manufacturing | −0.05 | −0.13 | −0.04 | −0.11 | −0.02 | −0.01 | −0.01 | 0.03 | −0.01 | 0.06 |
(0.86) | (0.33) | (−0.79) | (−0.34) | (−0.84) | (−0.36) | (−0.93) | (−0.42) | (0.96) | (0.43) | |
Wholesale trade | 0.10 | 0.99+ | 0.12* | 1.28** | 0.12+ | 1.26** | 0.09 | 1.04* | 0.11 | 1.16* |
(1.16) | (0.58) | (−0.79) | (−0.44) | (−0.82) | (−0.46) | (−0.89) | (−0.50) | (0.84) | (0.48) | |
Retail trade | 0.03 | 0.07 | 0.02 | 0.00 | 0.01 | −0.03 | 0.02 | −0.08 | 0.03 | −0.06 |
(0.46) | (0.20) | (−0.44) | (−0.21) | (−0.47) | (−0.21) | (−0.50) | (−0.22) | (0.50) | (0.22) | |
Other sector | 0.06 | 0.21 | 0.05 | 0.18 | 0.08 | 0.49 | 0.07 | 0.35 | 0.08 | 0.39 |
(0.55) | (0.24) | (−0.55) | (−0.25) | (−0.62) | (−0.32) | (−0.62) | (−0.33) | (0.64) | (0.33) | |
Performance change 2009–2010 | −0.02 | −0.09 | ||||||||
(−0.22) | (−0.10) | |||||||||
Performance change 2007–2010 | −0.10 | −0.17 | ||||||||
(−0.23) | (−0.10) | |||||||||
Constant | 4.32*** | −1.44 | −0.72 | −0.26 | −1.10 | |||||
(0.99) | (−1.33) | (−1.59) | (−1.78) | (1.58) | ||||||
Observations | 220 | 220 | 220 | 220 | 185 | 185 | 159 | 159 | 159 | 159 |
Adjusted/pseudo-R-squared | −0.01 | 0.02 | 0.12 | 0.09 | 0.09 | 0.11 | 0.11 | 0.11 | 0.11 | 0.10 |
Log-likelihood | −222.4 | −204.94 | −171.4 | −147.3 | −148.2 |