Power, trust and tax compliance: Evidence from clusters of countries

Abstract

Tax compliance is important for public revenues, programs, and services that can improve people's quality of life and the provision of public goods. The analysis focuses on the long-run relationships between tax compliance (taxpayers' behavior), public trust in politicians (trust in authorities), and the rule of law (power of the authorities). The analysis uses unbalanced panel data for 68 countries from 2007–2017 and on clusters of countries. A positive shock in trust positively affects tax compliance in the short term in the case of East Europe, Africa and the Middle East, and Confucian Asia clusters. A positive shock in power positively affects tax compliance in the case of the Anglo and Africa and Middle East clusters. Trust and power impact tax compliance and differ depending on the analyzed groups. A collaborative relationship between the authorities and the taxpayer might be obtained by providing well-functioning institutions, being open and transparent about their work, and instilling confidence. These aspects are essential in any economy because the results may be related to increased compliance.