Cultural norms and tax compliance: Evidence from China

Maoyong Cheng, Ziying Fan, Chen Feng and Binbin Tian

Journal of Economic Behavior & Organization, 2024, vol. 227, issue C

Abstract: Existing studies suggest that formal institutions can effectively constrain corporate tax evasion and increase tax compliance, but little has been said about the role of informal institutions regarding tax compliance. This study empirically examines the long-term effect of Confucian cultural norms on corporate tax compliance using unique cultural and historical data from China. We find that the intergenerational transmission of the Confucian culture can significantly promote the tax compliance of modern firms, thereby effectively reducing tax evasion. Simultaneously, the compliance effect is more pronounced in informal firms, such as small-scale, non-listed, and local firms. In terms of mechanism analysis, the normative effect of the Confucian culture is a key mechanism for explaining variations in corporate tax compliance behaviors under different cultural norms. Overall, this study fills a gap in the research on how informal institutions regulate the behavior of firms to a certain extent, and at the same time supplements the existing literature on understanding the long-term effects of the Confucian culture.

Keywords: Confucianism; Cultural norms; Tax compliance (search for similar items in EconPapers)
JEL-codes: H26 M14 N95 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:227:y:2024:i:c:s0167268124003342

DOI: 10.1016/j.jebo.2024.106720

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