Trust in Public Finance

Joel Slemrod

No 9187, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using data on trust and trustworthiness from the 1990 wave of the World Values Survey, I first investigate a model of the extent of tax cheating and the size of government that recognizes the interdependence of the two. The results reveal that tax cheating is lower in countries that exhibit more (not-government-related) trustworthiness. However, holding that constant, tax cheating becomes more acceptable as government grows. All in all, there is some weak evidence that the strong positive cross-country correlation between the size of government and tax cheating masks the fact that big government induces tax cheating while, at the same time, tax cheating constrains big government. I then add to the structural model an equation determining the level of prosperity, allowing prosperity to depend, inter alia, on the level of government and on trust in others. I find some evidence that both prosperity and government involvement are higher in more trusting societies. Moreover, holding these measures of trust constant, the association of government size with prosperity is positive until a level of government spending somewhere between 31% and 38% of GDP, after which its marginal effect is negative. Thus, although a trusting citizenry allows larger government, the tax burden this entails erodes the rule obedience taxpayers exhibit toward government.

JEL-codes: H10 P10 (search for similar items in EconPapers)
Date: 2002-09
New Economics Papers: this item is included in nep-cdm
Note: EFG PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

Published as Cnossen, Sijbren and Hans-Werner Sinn (eds.) Public finance and public policy in the new century, CESifo Seminar Series. Cambridge and London: MIT Press, 2003.

Downloads: (external link)
http://www.nber.org/papers/w9187.pdf (application/pdf)

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: https://EconPapers.repec.org/RePEc:nbr:nberwo:9187

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w9187

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().