The Impact of Culture and Economic Structure on Tax Morale and Tax Evasion: A Country-Level Analysis Using SEM

Abstract

The purpose of this study is to develop a comprehensive international tax evasion framework by examining how national cultural variables and economic structural variables impact individuals’ tax morale and tax evasion.

This study uses structural equation modeling (SEM) to simultaneously analyze direct and indirect paths between country-level variables, tax morale, and tax evasion.

The results of this study show that multiple cultural and structural level variables directly impact tax evasion. Further, multiple cultural variables indirectly impacts tax evasion via changing individuals’ tax morale attitudes. In that, higher tax morale leads to lower levels of tax evasion. Finally, the analysis demonstrates that tax morale attitudes and tax evasion levels differ significantly in developed countries versus in-transition or developing countries. In addition, the impact of these cultural variables and economic variables on tax morale and tax evasion differ depending on a country’s economic development.

This study further develops an understanding of how various cultural variables and economic variables impact tax evasion. Such that, some of the variables change tax morale attitudes which impacts tax evasion while other variables impact tax evasive behavior directly. This more holistic model can be used by researchers to further explore tax evasion behavior in an international context.

Policy makers should take note of this study when developing strategies to mitigate tax evasive behavior. Specific country characteristics, such as culture and economic structure, will impact how individuals respond to policy (e.g., new laws or penalties).

Citation

Brink, W.D. and Porcano, T.M. (2016), "The Impact of Culture and Economic Structure on Tax Morale and Tax Evasion: A Country-Level Analysis Using SEM", Advances in Taxation (Advances in Taxation, Vol. 23), Emerald Group Publishing Limited, Leeds, pp. 87-123. https://doi.org/10.1108/S1058-749720160000023004