Taxanddevelopment: What Drives Tax Morale?
Taxanddevelopment: What Drives Tax Morale?
Taxanddevelopment: What Drives Tax Morale?
l
l
Although there is a strong correlation between the level of a countrys development and its tax
revenues, there are significant differences across countries at similar stages of development
(see Annex A). For example, why is it that while Jordan and Guatemala have very similar
levels of GDP per capita, tax revenues in Jordan are around 33% of GDP, while in Guatemala
revenues only amount to around 13% of GDP (almost half of the expected level given its GDP
per capita)? And why is it that the citizens of some countries are happy to pay their taxes
(e.g. practically all Ghanas citizens), while others are not (e.g. most of Serbias)?
MARCH 2013
OECD
BOX 2.1. What is the World Values Survey and how is it relevant?
The WVS is a global research project that explores peoples values and beliefs, how they change over time and what
social and political impact they have. It is carried out by a worldwide network of social scientists who, since 1981, have
conducted representative national surveys in almost 100 countries. The WVS is the only source of empirical data on
attitudes covering a majority of the worlds population (nearly 90%). The WVS is a useful data source because it asks
people Do you justify cheating on taxes if you have a chance?. It also asks Do you justify claiming benefits youre not
entitled to?, How good would you say is having a democratic political system for governing your country? and How
much confidence do you have in the government (in your nations capital)?
http://www.worldvaluessurvey.org/
Research shows a significant correlation between tax morale
and tax compliance in both developing and developed countries. For example, tax morale is an important determinant
of the shadow economy and therefore has an impact on
tax evasion (Torgler, 2011). Thus, understanding better what
drives differences in tax morale across countries is a key
element in understanding differences in tax compliance. It
also offers a more grassroots perspective on tax systems
than administrative and quantitative measures, such as tax
to GDP ratio.3
Eastern Europe
Asia
Africa
North America
and Oceania
Andorra
Bulgaria
China
Burkina Faso
Australia
Argentina
Cyprus
Moldova
Chinese Taipei
Egypt
Canada
Brazil
Finland
Poland
Georgia
Ethiopia
New Zealand
Chile
France
Romania
Ghana
United States
Colombia
Germany
Russia
India
Mali
Guatemala
Italy
Serbia
Indonesia
Morocco
Mexico
Netherlands
Slovenia
Iran
Rwanda
Norway
Ukraine
Japan
South Africa
Uruguay
Spain
Jordan
Zambia
Sweden
Malaysia
Switzerland
Korea
United Kingdom
Thailand
Turkey
Vietnam
Note: This grouping represents a slight modification of the United Nations regional classification (http://unstats.un.org/unsd/methods/m49/m49regin.htm). Due to the
limited size of the sample, using more detailed sub-regions would rend the exercise of little comparative value.
2 OECD
2. W
HAT FACTORS INFLUENCE TAX MORALE?
THE GLOBAL PICTURE
picture of tax morale (Box 2.1). For this report, data from the
12.4%
AGE
7.5%
TRUST IN GOVERNMENT
5.5%
FEMALE
3.5%
RELIGIOUS
2.7%
EDUCATIONAL ATTAINMENT
1.5%
l Those
l Women
l Older
l More
14%
l Citizens
l Individuals
l Citizens
12%
l Part-time
10%
8%
6%
4%
2%
l There
OECD 3
FIGURE 2.2.
Regional differences in the effects of perceptions of institutions on tax morale (relative to North America
and Oceania)
WESTERN EUROPE
EASTERN EUROPE
ASIA
AFRICA
LATIN AMERICA
Support
for democracy
12%
10%
8%
Support
for democracy
6%
Support
for democracy
4%
Trust in
government
2%
Support
for democracy
0%
-2%
Support
for democracy
Trust in
government
-4%
-6%
Trust in
government
-8%
-10%
-12%
Trust in
government
Trust in
government
Notes: % refers to the marginal effects of selected variables, where 0% in the baseline of North America and Oceania.
Support for democracy refers to individuals who think democracy is the best political system for their country. Trust in government asks individuals how much
confidence they have in the government of their countrys capital city.
Source: OECD Secretariat - based on the World Values Survey database (2005).
4 OECD
between countries.
Africa
Figure 3.1 presents the results for the question the tax
FIGURE 3.2.
People in Latin America who agree that tax evasion is
never justified
DO NOT AGREE
DO NOT AGREE
2.5
3.5
7.5
8.5
9.5
6.5
7.5
8.5
9.5
VENEZUELA
ARGENTINA
PERU
HONDURAS
COLOMBIA
STRONGLY AGREE
6.5
ECUADOR
CHILE
FIGURE 3.1.
People in Africa who agree that the tax department
always has the right to make people pay taxes
AVERAGE RANK, 1-5
4.5
GHANA
BRAZIL
PARAGUAY
URUGUAY
LIBERIA
BOLIVIA
BOTSWANA
EL SALVADOR
LESOTHO
MEXICO
MOZAMBIQUE
PANAMA
ZIMBABWE
DOMINICAN REP.
NAMIBIA
COSTA RICA
MALI
GUATEMALA
TANZANIA
NICARAGUA
UGANDA
DO NOT AGREE
NIGERIA
SOUTH AFRICA
STRONGLY AGREE
AVERAGE RANK, 1-10
KENYA
SENEGAL
ZAMBIA
MALAWI
MADAGASCAR
CAPE VERDE
BENIN
BURKINA FASO
2.5
3
DO NOT AGREE
3.5
AVERAGE RANK, 1-5
4.5
STRONGLY AGREE
OECD 5
FIGURE 3.3.
Figure
People
Asia wholike
would
see more
government
People
in3.3.
Asia
whoin would
tolike
seeto more
government
spending even if it requires a tax increase d
spending even if it requires a tax increase
NEPAL
DO NOT AGREE
3.2
3.4
3.6
3.8
STRONGLY AGREE
4.2
Asia
The AsiaBarometer survey explicitly links government
spending to taxes. Survey participants are asked whether
they would like to see more or less government spending
4.4
LAOS
MALDIVES
AFGHANISTAN
PHILIPPINES
TURKMENISTAN
KYRGYSTAN
MALAYSIA
SRI LANKA
l perceptions of corruption.
BANGLADESH
CHINA
TAJIKISTAN
BHUTAN
as a measure of how well governments convert taxes into expenditures. In all three regions satisfaction with services such
THAILAND
SINGAPORE
CAMBODIA
VIETNAM
FIGURE 3.4.
Tax Morale and satisfaction with public services
in Latin America
MONGOLIA
KAZAKHSTAN
9.5
INDONESIA
UZBEKISTAN
PAKISTAN
8.5
KOREA
HONG KONG,
CHINA
CHINESE TAIPEI
JAPAN
Tax morale
(average rank; 1-10, 10 = never justify)
INDIA
3.2
3.4
DO NOT AGREE
3.6
3.8
4.2
4.4
STRONGLY AGREE
7.5
6.5
1.5
2.0
2.5
3.0
Satisfaction with public education
(average rank; 1-5, 5 = strongly agree)
3.5
6 OECD
FIGURE 3.5.
Trust in government and willingness to pay tax in Asia
4.5
Trust in government
Citizens are more likely to perceive tax obligations more
favourably when their government is seen to be acting in a
3.5
3
1.5
2.0
2.5
3.0
3.5
4.0
FIGURE 3.6.
Perceptions of corruption and tax morale in Africa
The tax department always has the right to make people pay taxes
(1-5, 5 = strongly agree)
Corruption
Data from the three regional surveys, but especially from
Africa (Figure 3.6), point to a possible relationship between
tax morale and the perception of corruption. There is some
evidence to suggest that tax evasion is associated with
4.5
3.5
Tax morale is at the heart of statebuilding and the citizenstate relationship. This study has identified broad factors and
trends which appear to hold true across a range of countries
2.5
0%
5%
10%
15%
20%
25%
30%
All tax ofcials are corrupt
(% of respondents)
35%
35% 40%
OECD 7
developing countries.9
prevalent.
8 OECD
OECD 9
ANNEX A
FIGURE A.1.
Tax Effort Index in 2008
0
0.5
1.0
1.5
2.0
2.5
0.5
1.0
1.5
2.0
2.5
Ghana
Benin
Togo
Namibia
Kenya
Morocco
Mali
South Africa
Cape Verde
Fiji
Zambia
Jamaica
Tunisia
Bosnia and Herzegovina
Bulgaria
Burkina Faso
Moldova
Macedonia, FYR
Croatia
Trinidad and Tobago
Cte dIvoire
Belarus
Hungary
Armenia
Uganda
Bolivia
Uruguay
Nepal
Slovenia
Egypt, Arab Rep.
Chile
Maldives
Madagascar
Ukraine
Sri Lanka
Honduras
Poland
Thailand
Mauritius
Philippines
Lithuania
Pakistan
Georgia
Paraguay
Lebanon
Peru
Dominican Republic
India
Estonia
Latvia
Romania
Korea, Rep.
El Salvador
The Bahamas
Guatemala
Kazakhstan
Slovak Republic
Cambodia
Venezuela, RB
Bangladesh
Bhutan
China
Iran, Islamic Rep.
Congo, Rep.
Kuwait
0
Note: Tax effort is an index measure of how well a country is doing in terms of tax collection, relative to what could be reasonably expected
given its economic potential.
Source: OECD (2011) based on World Development Indicators.
10 OECD
ANNEX B
Brief Summary of the Literature
Notes
OECD 11
ANNEX C
A Probit model was estimated on an individual basis with tax morale as the dependent variable and the various socioeconomic
and institutional factors as independent variables (see Table C.1). It is important to note that country coverage is limited and that
the results are interpreted as correlations, not causality.
TABLE C.1. Probit regressions correlation of tax morale with socioeconomic and institutional factors
(columns reflect different model specifications to test robustness)
Table 2.1: Countries who responded to the tax morale question
(1)
(2)
(3)
(4)
(5)
(6)
Religious
3.0%
(0.004)***
2.7%
(0.004)***
2.9%
(0.004)***
3.4%
(0.004)***
3.2%
(0.005)***
2.7%
(0.004)***
Female
3.3%
(0.004)***
3.4%
(0.004)***
3.3%
(0.004)***
3.3%
(0.004)***
3.6%
(0.004)***
3.5%
(0.004)***
Age
0.2%
(0.000)***
0.2%
(0.000)***
0.2%
(0.000)***
0.2%
(0.000)***
0.2%
(0.000)***
0.2%
(0.000)***
Educational Attainment
0.4%
(0.001)***
0.4%
(0.001)***
0.3%
(0.001)***
0.5%
(0.001)***
0.3%
(0.001)***
0.2%
(0.001)***
Part-time employed
-1.9%
(0.007)***
-1.8%
(0.007)***
-1.7%
(0.007)**
-1.9%
(0.007)***
-1.7%
(0.008)**
-1.7%
(0.007)**
Self-employed
-1.5%
(0.006)***
-1.1%
(0.006)*
-1.3%
(0.006)**
-1.1%
(0.006)*
-0.6%
-0.007
-1.0%
-0.007
Retired
2.7%
(0.007)***
2.9%
(0.007)***
2.7%
(0.007)***
2.8%
(0.007)***
3.0%
(0.008)***
2.9%
(0.007)***
Housewife
-0.1%
-0.006
0.1%
-0.007
0.3%
-0.006
0.0%
-0.007
0.6%
-0.008
0.5%
-0.007
Student
0.3%
(0.007)
0.3%
(0.007)
0.2%
(0.007)
0.3%
(0.008)
0.2%
(0.008)
0.2%
(0.008)
Unemployed
-1.1%
(0.006)*
-1.2%
(0.006)*
-0.6%
(0.006)
-1.1%
(0.007)*
-0.8%
(0.007)
-0.7%
(0.006)
1.7%
(0.002)***
1.8%
(0.002)***
4.3%
(0.003)***
4.1%
(0.003)***
2.2%
(0.002)***
Trust in Government
4.3%
(0.002)***
52,474
47,780
47,564
0.1%
(0.001)**
0.1%
(0.001)
45,397
38,223
43,982
Notes: Marginal effects of a change in a single unit. Robust standard errors in parenthesis. *, **, *** denote significance at 10%, 5% and 1% respectively.
Regressions include country and marital status dummies not reported here. The dummy for full-time employment is omitted in the regressions.
12 OECD
www.oecd.org/tax/tax-global/taxanddevelopment.htm