Article

Do the Catholic and Protestant Countries Differ by Their Tax Morale?

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Abstract

Does the tax morale differ between various countries? The paper introduces a model of tax evasion. The equilibrium shadow production is determined by consumers’ and entrepreneurs’ tax morale, affected by the inherited culture or religion. The model suggests that in the conditions of the prisoners’ dilemma, shadow economies tend to be large once a moral code is violated. The implications of the model are tested in the OECD data on groups of countries with different religious denominations in two regimes, 1979–1992 and 1992–2003. We find evidence on a link between tax morale and shadow market activities, but none to support the view that tax morale differs between the catholic south and protestant north in Europe.

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... ways, but few studies regard it in relation to the shadow economy (Kanniainen andPääkkönen, 2010, Heinemann andSchneider, 2011;. Kanniainen and Pääkkönen (2010) investigate the influence of inherited culture or religion on the tax morale of the consumers and entrepreneurs and therefore on the shadow economy. ...
... ways, but few studies regard it in relation to the shadow economy (Kanniainen andPääkkönen, 2010, Heinemann andSchneider, 2011;. Kanniainen and Pääkkönen (2010) investigate the influence of inherited culture or religion on the tax morale of the consumers and entrepreneurs and therefore on the shadow economy. They found evidence on a negative link between shadow economy and tax morale but not significant evidence on the influence of catholic or protestant religion on the tax morale and shadow economy. ...
Book
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Human society has changed a lot and is changing nowadays with an increasing rapidity. We assist today to a high reconstruction of the classical economy under the form of the new economy, in which the behaviors patterns are more and more valued and the dilemma of homo economicus vs homo spiritualis is the subject of the larger debates. Literature reveals the tensions between homo economicus, whose actions are predominantly based on self-interest and homo spiritualis, who considers goodness, compassion, truth and justice in the human actions. Therefore, nowadays the researchers of economic phenomena largely go beyond the economic explanations, emphasizing the role of social and psychological factors. This book is meant to highlight the role of some important drivers such as culture, religion, happiness or subjective well-being on the economic phenomena such as corruption and shadow economy (at macroeconomic level) or entrepreneurship and business performances (at microeconomic level). These relationships are analyzed using both a theoretical and practical view under some empirical studies.
... The second objective of our study is to investigate, along with culture, the impact of a religion (as related to culture) on the shadow economy. Very few papers analyze the influence of religion on the shadow economy (Heinemann and Schneider 2011;Kanniainen and Pääkkönen 2010;Richardson 2008;Schneider, Linsbauer, and Heinemann 2015), and their results are not convincing. This is because, on the one hand, some studies (Heinemann and Schneider 2011;Richardson 2008;Schneider, Linsbauer, and Heinemann 2015) document opposite and significant influence; on the other hand, other studies (Kanniainen and Pääkkönen 2010) found no significant influence. ...
... Very few papers analyze the influence of religion on the shadow economy (Heinemann and Schneider 2011;Kanniainen and Pääkkönen 2010;Richardson 2008;Schneider, Linsbauer, and Heinemann 2015), and their results are not convincing. This is because, on the one hand, some studies (Heinemann and Schneider 2011;Richardson 2008;Schneider, Linsbauer, and Heinemann 2015) document opposite and significant influence; on the other hand, other studies (Kanniainen and Pääkkönen 2010) found no significant influence. Moreover, except for Richardson's study (2008), the studies mentioned lack any analysis of religion's influence on the shadow economy, although religion can be seen as a proxy for the cultural imprint of a country (Heinemann and Schneider 2011;Schneider, Linsbauer, and Heinemann 2015). ...
Article
This paper investigates whether culture plays a role in the size of the shadow economy in countries. We also examine the impact of religion and happiness variables on the size of the shadow economy across countries after controlling for governance, economic development, and the tax burden, using panel data on 31 European countries over the period 2005–2015. First, we found that the gross domestic product (GDP) of European countries is underreported by 19 percent because of unrecorded shadow economy activities. Second, our empirical findings document that collectivism, femininity, a short-term orientation, restraint, and religiosity increase the size of the shadow economy, whereas greater happiness decreases it. The findings are important for policy makers so that they can include cultural factors in their analysis of people’s behavior regarding the shadow economy and thus make the most appropriate decisions on how to fight this phenomenon.
... The finding is that tax morale increases with trust in government and the judiciary, lower levels of perceived corruption, satisfaction with public services and national pride. Other country-level variables investigated, albeit by fewer studies, include trust in others to obey the law (Dong et al., 2012;Giachi, 2014), social security expenditure (Kanniainen and Pääkkönen, 2010) and tax rates (Lago-Peñas and Lago-Peñas, 2010). The finding is that lower tax morale is associated with a lower trust in others to obey the law, lower levels of social expenditure and higher tax burdens. ...
Purpose – The purpose of this paper is to advance a new explanation for cross-country variations in the participation of small businesses in the informal economy. Drawing upon institutional theory, it proposes that the greater the asymmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality), the greater is the propensity of small businesses to participate in the informal economy. To analyse this, the extent to which small businesses evade payroll taxes by paying employees an undeclared (envelope) wage in addition to their official declared salary is analysed. Design/methodology/approach – To evaluate this, data are reported from a 2013 Eurobarometer survey involving 5,174 face-to-face interviews with employees in small businesses across the 28 member states of the European Union (EU-28). Findings – The finding is that small businesses display a greater propensity to engage in this informal wage practice in countries where there is a higher degree of asymmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality). A multi-level logistic regression analysis reveals these to be countries which have lower qualities of governance, lower levels of taxation and intervention in the labour market and less effective social transfer systems. Research limitations/implications – The major limitation of this study is that it has only examined whether employees in small businesses receive informal wages. Future cross-country surveys should analyse a wider range of ways in which small businesses participate in the informal economy such as under-reporting turnover. Originality/value – This is the first known analysis of cross-country variations in the participation of small businesses in the informal economy.
... The finding is that tax morale increases with trust in government and the judiciary, lower levels of perceived corruption, satisfaction with public services and national pride. Other country-level variables investigated, albeit by fewer studies, include trust in others to obey the law (Dong et al., 2012;, social security expenditure (Kanniainen and Pääkkönen, 2009) and tax rates Lago-Peñas and Lago-Peñas, 2010;. The finding is that lower tax morale is associated with a lower trust in others to obey the law, lower levels of social expenditure and lower tax rates. ...
... Of particular interest is that religiosity in general and church attendance in particular increase tax compliance (Prinz, 2004; Torgler, 2006) as well as patriotism (Konrad & Qari, 2012), social capital (Alm & Gomez, 2008) and other cultural factors (Coleman & Freeman, 1997; Torgler, 2003a; Alm & Torgler, 2006; Torgler & Schneider, 2007; Tsakumis et al., 2007; Richardson, 2008; Lago-Peñas & Lago- Peñas, 2010; Bame-Aldred et al., 2011). In contrast to these results, no differences of tax morale could be found between the catholic southern part of Europe and the protestant north (Kanniainen & Pääkkönen, 2010). ...
Article
Since the 1950s (Schmölders, 1959) it is well known that behavioral aspects have an influence on tax evasion or tax compliance. In particular, interactions among the various entities involved in the taxation process (e.g. taxpayers, law makers, tax practitioners, tax authorities, etc.), and the dynamics that these interactions may generate, seem to play an important role for the actual level of tax compliance. However, the mainstream neoclassical approach to tax evasion (Allingham & Sandmo, 1972) cannot account for such interactions and dynamics. Therefore, during the last two decades new approaches (e.g. lab experiments, agent-based modeling, etc.) have been developed with a view to model how behavioral dynamics may foster or prevent tax evasion. In addition, empirical evidence has been generated that supports a role for such interaction dynamics. In this contribution we survey the main developments in this research area and provide some suggestions for further research.
... The finding is that tax morale increases with trust in government and the judiciary, lower levels of perceived corruption, satisfaction with public services and national pride. Other country-level variables investigated, albeit by fewer studies, include trust in others to obey the law (Dong et al., 2012;, social security expenditure (Kanniainen and Pääkkönen, 2009) and tax rates Lago-Peñas and Lago-Peñas, 2010;. The finding is that lower tax morale is associated with a lower trust in others to obey the law, lower levels of social expenditure and lower tax rates. ...
Book
How many businesses start-ups conduct some or all of their trade ‘off-the-books’? And how many enterprises continue to do some of their work off-the-books once they are more established? What should be done about them? Should governments adopt ever more punitive measures to eradicate them? Or should we recognise this hidden enterprise culture and attempt to harness it? If so, how can this be done? What measures can be taken to ensure that businesses start-up in a proper manner? And what can be done to help those enterprises and entrepreneurs currently working off-the-books to legitimise their businesses? The aim of this book is to advance a new way of answering these questions. Drawing inspiration from institutional theory, informal sector entrepreneurship is explained as resulting from the asymmetry between the codified laws and regulations of a society’s formal institutions and the norms, values and beliefs that comprise a society’s informal institutions. The argument is that if the norms, values and beliefs of entrepreneurs (i.e., their individual morality) were wholly aligned with the codified laws and regulations (i.e., state morality), there would be no informal sector entrepreneurship. However, because the individual morality of entrepreneurs differs from state morality, such as due to their lack of trust in government and the rule of law, the result is the prevalence of informal sector entrepreneurship. The greater the degree of institutional asymmetry, the higher is the propensity to engage in informal sector entrepreneurship. This book provides evidence to show that this is the case both at the individual- and country-level and then discusses how this can be overcome.
... Indeed, analysing Hofstede's dimensions of culture, the finding is that the level of tax morale is lower in those cultures where the distance to power is higher (Brink and Porcano, 2016). Turning to religion, no difference in tax morale between different religions has been identified (Alasfour et al., 2016;Kanniainen and Pääkkönen, 2010;Torgler, 2003d). However, religiosity, measured mostly as the frequency of attendance at church, is positively associated with tax morale (list of studies in Table II). ...
Article
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Purpose The purpose of this paper is to conduct a systematic review of the factors that shape tax morale. A large range of random explanatory variables identified in the literature as determinants of tax morale are synthesised and structured by drawing inspiration from the institutional theory. Design/methodology/approach To do this, a systematic search has been conducted using a library catalogue which provides access to more than 400 databases. Findings The finding is that the institutional theory provides a suitable theoretical basis to explore tax morale. Indeed, all the factors until now identified as determinants of tax morale (except the control variables/socio-demographic characteristics) can be categorised either as belonging to formal institutions or to informal institutions. The most salient factor is trust, with both vertical and horizontal trust positively related to tax morale. Research limitations/implications The outcome is a call for a more nuanced understanding of not only the effect of formal and informal institutions on tax morale but also how formal and informal institutions interact and alter each other and, consequently, affect tax morale. Practical implications The paper seeks to encourage governments to start recognising that as low tax morale arises when a gap exists between formal and informal institutions, they need to design policy measures aimed to reduce this gap, rather than persisting with deterrence measures. Originality/value This is the first systematic review of the factors that influence tax morale using an institutionalist lens.
... Households with higher self-esteem appear to reduce their level of risk by looking for product warranties that will limit their exposure to information asymmetry risk (Taylor, 1974). Individuals who have high self-esteem and those who are wary of social punishment are less likely to evade taxes or engage in illegal activities (Kanniainen & Paakkonen, 2007). Since the outcome of this choice can only be known in the future, households have no other option but to deal with the uncertainty regarding their investment choice. ...
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Full-text available
Self-esteem measures confidence in one's abilities. Prior literature has shown that higher self-esteem can also affect individual financial decision making through an increased willingness to invest in risky assets and motivation to enhance self image through wealth accumulation. However, self-esteem can also lead to wealth-destroying investment behaviors due to overconfidence and an unwillingness to accept inevitable losses. Using the Rosenberg Self-esteem Scale included in the National Longitudinal Survey of Youth, we model wealth and portfolio allocation as a function of self-esteem, socioeconomic and demographic variables. Self-esteem is positively associated with an increase in net worth between 1994 and 2004, and with the proportion of a household portfolio held in investment assets. This study adds to the literature on psychological determinants of optimal household portfolio allocation by providing evidence that the positive effects of self-esteem outweigh the negative financial behaviors identified in prior literature.
... Dini kurallara göre alınan vergilerin yanında dini inancı kuvvetli olan bir mükellefin genel vergi uyumuna da daha gönüllü olduğu yapılan araştırmalarda da ortaya çıkmıştır. Katoliklerin dini inançlara Protestanlardan daha çok bağlı olması vergi sisteminde de Katoliklerin vergi kültürlerinin Protestanlara göre daha fazla olduğu görülmektedir (Kanniainen ve Paakkönen, 2007). Vergi kaçırmanın günah olduğunu düşünen mükellef zorla vergi verme eğiliminde de olabilmektedir. ...
Article
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Tax consciousness increases tax revenues by making a positive impact on informality, tax justice and leaks. The aim of our study is to determine tax-consciousness dimensions and evaluate the tax-consciousness of IAFAs (independent accounting and finance advisers) according to determined dimensions, and to present the findings to researchers and decision makers. In this sense, survey data of 171 IAFAs in Zonguldak /Turkey are examined in terms of 4 dimensions through factor analysis. Dimensions’ factor scores are produced over 3 different scenarios and those produced over weight of factor loads are found as more appropriate ones. IAFAs’ tax-consciousness are the highest in the dimension of "tax revenues" and the lowest in the dimension of "tax perception". In addition, the relationship between dimensions and the existence of differences according to the characteristics of IAFAs are also examined.
... Dini kurallara göre alınan vergilerin yanında dini inancı kuvvetli olan bir mükellefin genel vergi uyumuna da daha gönüllü olduğu yapılan araştırmalarda da ortaya çıkmıştır. Katoliklerin dini inançlara Protestanlardan daha çok bağlı olması vergi sisteminde de Katoliklerin vergi kültürlerinin Protestanlara göre daha fazla olduğu görülmektedir (Kanniainen ve Paakkönen, 2007). Vergi kaçırmanın günah olduğunu düşünen mükellef zorla vergi verme eğiliminde de olabilmektedir. ...
... Until now, the tax morale literature has conducted exploratory analyses of a range of variables to examine their influence. This has included a range of socio-demographic and socio-economic variables such as age, gender, education level, employment status, income level, marital status, social class and religiosity (Alm & Torgler, 2006;Cannari & D'Alessio, 2007;D'Arcy, 2011;Daude & Melguizo, 2010;Daude, Gutiérrez, & Melguizo, 2013;Giachi, 2014;Kanniainen & Pääkkönen, 2010;Kastlunger, Lozza, Kirchler, & Schabmann, 2013;Lago-Peñas & Lago-Peñas, 2010;Martinez-Vazquez & Torgler, 2009;Russo, 2013;Torgler, 2004Torgler, , 2005aTorgler, , 2005bTorgler, , 2006Torgler & Schneider, 2007;Williams & Martinez, 2014). The finding across a range of different contexts is that tax morale is lower among men, single people, the unemployed and self-employed, and increases with religiosity, age, perceived social status and income but is negatively related to years spent in formal education. ...
Article
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To explain the shadow economy in the Baltic states of Estonia, Lithuania and Latvia, this paper evaluates the relationship between the shadow economy and tax morale. Viewing tax morale as a measure of the symmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality), the proposition is that the lower the tax morale (i.e. the greater the asymmetry between state morality and civic morality), the greater is the likelihood to participate in the shadow economy. To evaluate this, a 2013 survey is reported involving 3036 face-to-face interviews in these 3 Baltic nations. Using logistic regression analysis, the finding is that the likelihood of participating in the shadow economy is greater, the lower is the tax morality of individuals, population groups and countries. In addition, the likelihood to participate is shadow economy is found to significantly vary by, for example, gender, employment status and country, people living in Latvia and Lithuania displaying significantly lower likelihood to engage in the shadow economy. The paper then explores the implications for theorizing and tackling the shadow economy.
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Reporting a 2013 Eurobarometer survey of participation in the informal economy across eight Baltic countries, this paper tentatively explains the informal economy from an institutional perspective as associated with the asymmetry between the codified laws and regulations of the formal institutions (state morality) and the norms, values and beliefs of citizens (civic morality). Identifying that this non-alignment of civic morality with the formal rules is more acute when there is greater poverty and inequality, less effective redistribution and lower levels of state intervention in the labour market and welfare, the implications for theorising and tackling the informal economy are then discussed.
Chapter
Georgia is said to be one of the countries with the largest informal economies in the world. This is despite the fact that the country is one of the top reformers among the countries of the former Soviet Union in terms of democratization and marketization. Its neighbour Armenia, on the other hand, has been slow with reforms and today remains a more authoritarian country with a less competitive private sector. This chapter seeks to find out whether the difference in the size of the informal economy between the two countries can be attributed to discrepancies between formal and informal institutions. Both quantitative and qualitative secondary data are used to determine the levels of tax morale of small businesses as an expression of diverging formal and informal institutions. The empirical evidence shows larger discrepancies between formal and informal institutions for Armenian than for Georgian entrepreneurs and thus rules out the institutional incongruence hypothesis as a possible explanation for the differences in the size of the informal sectors.
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To explain the shadow economy in the Baltic states of Estonia, Lithuania and Latvia, this paper evaluates the relationship between the shadow economy and tax morale. Viewing tax morale as a measure of the symmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality), the proposition is that the lower the tax morale (i.e., the greater the asymmetry between state morality and civic morality), the greater is the propensity to participate in the shadow economy. To evaluate this, a 2013 survey is reported involving 3,036 face-to-face interviews in these three Baltic nations. Using ordered logistic regression analysis, the finding is that the lower is the tax morale of individuals, population groups and countries, the greater is the propensity to participate in the shadow economy. The paper then explores the implications for theorising and tackling the shadow economy.
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Die Fragestellung, die mir aufgegeben wurde, lautet: Welche Rolle spielt die Moral bei Aktivitäten innerhalb der Schattenwirtschaft? Da das ganze unter dem Oberthema “(Aus-)Nutzung des Sozialstaats” steht, kann man dahinter folgende Überlegung vermuten: Erstens bedeuten Aktivitäten in der Schattenwirtschaft schon allein deshalb, weil keine Sozialbeiträge entrichtet werden, eine Ausnutzung des Sozialstaats. Zweitens ist es unmoralisch, den Sozialstaat auszunutzen. Daraus folgt nicht nur, dass es unmoralisch ist, in der Schattenwirtschaft zu arbeiten, sondern auch, und das wäre der wichtigere Aspekt, dass das Ausmaß der Schattenwirtschaft umso geringer ist, je höher der moralische Standard in einer Gesellschaft ist. Um die Schattenwirtschaft einzudämmen, so könnte man daraus folgern, sollte man daher das moralische Bewusstsein der Bürgerinnen und Bürger stärken. Das Problem ist nur, dass eigentlich niemand genau weiß, wie man das bewerkstelligen kann. Dass die Ökonomen dies nicht wissen, ist nicht weiter überraschend, aber auch die auf solche Fragestellungen viel eher trainierten Psychologen helfen uns offensichtlich nicht weiter. Schließlich ist, wenn man meinen eigenen Zahlen für die siebziger und achtziger Jahre1 sowie den neueren Zahlen von Schneider (1999) glauben darf, die Schattenwirtschaft trotz aller moralischer Appelle in den letzten Jahrzehnten auch in der Bundesrepublik Deutschland deutlich angewachsen. Diese Appelle waren offensichtlich nutzlos. Ultra posse, nemo obligatur, so sagten jedoch schon die Römer, und damit wäre mein Vortrag fast beendet.
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Book description: The four volumes of Game Equilibrium Models present applications of non-cooperative game theory. Problems of strategic interaction arising in biology, economics, political science and the social sciences in general are treated in 42 papers on a wide variety of subjects. Internationally known authors with backgrounds in various disciplines have contributed original research. The reader finds innovative modelling combined with advanced methods of analysis. The four volumes are the outcome of a research year at the Center for Interdisciplinary Studies of the University of Bielefeld. The close interaction of an international interdisciplinary group of researchers has produced an unusual collection of remarkable results of great interest for everybody who wants to be informed on the scope, potential, and future direction of work in applied game theory. Volume II Methods, Morals and Markets contains areas of research which will attract the interest of economists, political scientists, mathematicians and philosophers. The papers deal with the methodology of analysis of games, game theoretic contributions to fundamental ethical questions facing societies and game-theoretic analyses of market environments.
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