Public perceptions of governance and tax evasion: insights from developed and developing economies

Khalil Nimer, Ahmed Bani-Mustafa, Anas AlQudah, Mamoon Alameen and Ahmed Hassanein

Journal of Financial Reporting and Accounting, 2022, vol. 23, issue 3, 855-875

Abstract: Purpose - This paper aims to explore how the role of the perception of good public governance reduces tax evasion (TE). Besides, this study investigates whether the nexus of public governance and TE differs between developed and developing economies. Design/methodology/approach - Apart from the ordinary least squares (OLS) model, this study uses the linear mixed modeling technique. The World Governance Indicators and the multiple causes estimation (MIMIC) method are used to measure public governance. The shadow economy is used as a proxy for TE. Findings - The results show that people's perceptions of public governance and the quality of government institutions are core elements that influence tax-evasion behavior. Besides, the rule of law (RoL) and political stability (PS) significantly impact tax-evasion behavior in developing countries. Nevertheless, the RoL, the control of corruption and PS are the most critical tax-evasion determinants among public governance indicators for developed countries. Regulatory quality shows a substantial positive relationship with TE in developed but not developing countries. Practical implications - This paper provides a guide for policymakers on reducing tax-evasion behavior by paying more attention to maintaining the RoL and PS and fighting corruption. Additionally, this study highlights the importance of people's perceptions of the government's pursuit of the above policy-related improvements, which, in turn, affect their tax behavior. Originality/value - To the best of the authors’ knowledge, this study is the first to explore the role of people's perceptions of improvements in public governance and how this can reduce TE behavior in developed and developing economies. Unlike prior studies, this study used the linear mixed model method, which is more advantageous than OLS and produces robust estimators.

Keywords: Tax evasion; Public governance; World governance indicators; Linear mixed modeling (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:jfra-06-2022-0234

DOI: 10.1108/JFRA-06-2022-0234

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