Economics at your fingertips  

Tax enforcement, tax compliance and tax morale in transition economies: A theoretical model

Randolph Bruno

European Journal of Political Economy, 2019, vol. 56, issue C, 193-211

Abstract: The focus of this paper is the analysis of the relationship between tax enforcement, tax compliance and tax morale within countries characterised by rapid introduction of market institutions and slow evolution of political regimes, such as transition economies. The paper investigates a coordination game in which the government is ex-ante committed to tax enforcement and can observe the proportion of tax-compliant agents in the economy. In turn, two groups of agents (third-party reporting and self-reported income) are keen to evade taxes unlawfully but have limited information on how many others evade taxes; their tax morale is therefore an endogenous function of agents' perception on tax compliance. The model predicts that the lower the quality of political institutions and the weaker tax morale, the less tax compliance can be achieved. The third-party reporting group will also be bearing higher tax burden than the self-reported income group. The model entails that having political institutions of good quality is not a sufficient condition to conduce to tax enforcement or tax compliance. Due to the endogenous role of tax morale, the government could be pushed ex-post towards poor or no tax enforcement. If good political institutions are not accompanied by good information about the enforcement of tax collection, there is scope for co-existence of poor tax enforcement, low tax compliance and weak tax morale. As such, this model well describes the tax evasion behaviour observed since the outset of transition from planned to market economy.

JEL-codes: D81 K42 P26 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.ejpoleco.2018.08.006

Access Statistics for this article

European Journal of Political Economy is currently edited by J. De Haan, A. L. Hillman and H. W. Ursprung

More articles in European Journal of Political Economy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2023-04-28
Handle: RePEc:eee:poleco:v:56:y:2019:i:c:p:193-211