7/2021 Natalia Levenko, Karsten Staehr. Tax compliance in post-transition: You and your friends matter, not the government
Working Papers of Eesti Pank 7/2021
This paper contributes to the literature that seeks to assess the importance of various theories on tax evasion by individuals. The various theories can be distinguished in detail using a very fine-grained survey of Estonian residents that was collected in three rounds from 2018 to 2020. Principal component analysis shows that the survey replies are mutually consistent and form distinct clusters that match key theories on tax evasion. Logit estimations of tax compliance use the principal components and various control variables as covariates. Theories of individual rational choice do not gain support. Factors associated with personal norms and with social norms and customs are important for tax compliance. Importantly, theories of reciprocity that depict a positive relation between approval of the government and tax compliance receive no support, possibly reflecting the wide spread of views on the role of government in post-transition Estonia. Sample splits reveal that the results apply broadly across various subsets of taxpayers. The results of the principal component regressions are corroborated by logit estimations where the survey variables enter individually.
JEL Codes: H26, H83
Keywords: tax evasion, monetary and non-monetary motives, auditing, behavioural choice, norms and customs, reciprocity
Authors’ affiliation and email: Natalia Levenko: Tallinn University of Technology and Bank of Estonia. Karsten Staehr (corresponding author): Tallinn University of Technology and Bank of Estonia, email: [email protected]
The views expressed are those of the authors and do not necessarily represent the official views of Eesti Pank or the Eurosystem.