Fiscal transparency and tax ethics: does better information lead to greater compliance?

Abstract: By relying on WVS data and using multilevel mixed modeling, the paper tests the hypothesis that access to larger flows of information about government fiscal accounts and financial transactions increases citizens’ willingness to pay taxes. By supporting such an hypothesis, our analysis suggests that in the presence of more information, the implicit contract between the government and taxpayers displays less stringent incentives and participation constraints and causes part of the contract, namely tax morale, to be enhanced. This finding supports the implementation of fiscal transparency policies, whose possible design is discussed.

Keywords tax morale, fiscal transparency, tax compliance, corruption

JEL classification: H26, H83, D73.

1.Introduction

The roots of attitudes to tax obligations lie not only in purely economic, institutional and political

factors (e.g. Andreoni et al., 1998; Kim, 2008) but also in some form of moral obligation or civic

duty (Torgler, 2002; Torgler, 2007). The rich bundle of moral and ethical forces shaping individual

attitudes to paying taxes goes under the term of tax morale. This has been defined “broadly as an

umbrella term capturing nonpecuniary motivations for tax compliance as well as factors that fall

outside the standard, expected utility framework” (Luttmer and Singhal, 2014, p. 150). Among

potential mechanisms through which tax morale operates, the literature has emphasized that the

vertical relationship between the governing authority and taxpayers matters for tax compliance

decisions (Bazart and Bonein, 2014; Luttmer and Singhal, 2014).

Trust in, and the power of, tax authorities, satisfaction with the government, the ability to make

one’s voice heard and hold authorities accountable, the rule of law, government effectiveness and

procedural justice, control of corruption, and administrative efficiency have already been described

as important contributors to tax-compliant attitudes (Torgler, 2007; Alm and Torgler, 2012; Feld

and Frey, 2007; Torgler, 2007; Bird et al., 2008; Kirchler et al., 2008; Daude et al., 2012).

However, empirical efforts concerning how disclosure of fiscal information may affect tax

compliance are still lacking. This is surprising considering that the importance of fiscal

transparency in making citizens better informed about the use of public resources and the fairness of

the tax system is widely acknowledged both by academics and practitioners (IMF, 2018; Rodríguez

Bolívar et al., 2015). Moreover, global networks such as the Global Initiative for Fiscal

Transparency (GIFT), which raise awareness of accountability concerns in the citizens-government

relationship, highlight the importance of access to quality information to promote willingness to pay

taxes. This paper fills this gap by providing evidence regarding the link between fiscal transparency

and tax morale, within a policy framework aimed at reducing tax avoidance and evasion.

If tax payments are made in exchange for public goods and services provided by the state, taxation

can be extensively interpreted as an implicit contract between the government and taxpayers (Feld

and Fey, 2007; Bird et al., 2008; Luttmer and Singhal, 2014). As in any other form of contract with

informational costs, the willingness to pay taxes is relevant not only to determine the payoffs, but

also the level of information disclosure between the two parties. The interplay between tax morale

and information transparency is thus supposed to quantify and shape the incentives to adhere to the

contractual agreement.

Defined as the disclosure of financial and non-financial information regarding governmental

decision-making procedures and transactions (Kopits and Craig, 1998), fiscal transparency helps

citizens to hold their governments accountable by allowing democratic oversight of domestic

budgetary choices. Moreover, it can be a powerful instrument to restore the tax-benefit linkages and

to build fiscal legitimacy, which lies at the root of possible compliant behavior in taxation (Daude et

al., 2012; Bird et al., 2008).

Starting from this intuition, we reexamine the nature and determinants of tax morale by focusing on

the degree of fiscal information disclosure between government and its citizens. Our principal idea

is that since tax morale is a major incentive in the contractual agreement in which public goods and

services are exchanged for taxes, better informed taxpayers would comply more soundly with their

obligation to society.

More precisely, given the level of taxation and services, any improvement in the volume of

information concerning a government’s fiscal position and prospects would be reflected in less

stringent incentives forcing taxes to be paid. Indeed, with asymmetric information, participation

constraints and incentive constraints are necessary components of a contractual agreement, and the

contract adjusts the payoffs to satisfy these constraints. Since tax payments are given, an

improvement in information disclosure about fiscal accounts and government expenditure would

not be transferred to the payoffs but to the incentives to comply with the payment, including the

level of tax morale.

To measure the extent of disclosure of government fiscal data, we employ an index of fiscal

transparency (GFS Index) which measures the availability and comprehensiveness of government

finance statistics according to international standards (Wang et al., 2015). Access to information

relating to government decisions and financial transactions is supposed to increase tax morale

because more observable budget choices cause less distortion in principal-agent problems

associated with the relationship between taxpayers and decision-makers (Andreoni et al. 1998) and

reduce moral hazard behavior attached to various forms of fiscal illusion (von Hagen and Harden

1995; Kopits and Craig, 1998). Greater information disclosure facilitates understanding and

surveillance of the use of public resources, thus ameliorating the visibility of the correspondence

between such choices and citizens’ preferences, and positively influencing perceptions about the

fairness of the tax system. An increased legitimacy of governments’ fiscal behavior restores vertical

reciprocity between citizens and the tax authority which, in turn, increases tax morale (Bazart and

Bonein, 2014).

We test our assumption by specifying an empirical model in which a measure of tax morale is

regressed against an indicator of fiscal transparency and a set of individual-specific variables and

socio-economic characteristics. Following previous examples that tried to disentangle individual

from country-level determinants of tax compliance (Lago-Peñas and Lago-Peñas, 2010; Halla and

Schneider, 2008; Williams and Horodnic, 2016), we employ a multilevel approach that takes

account of the link between citizen-level tax morale and country-level covariates. The results show

that a higher degree of fiscal transparency is associated with a higher level of tax morale and that

this link is robust to the inclusion of a great variety of controls, including the level of corruption.

These findings have relevant policy implications, as they confirm that the transparency of public

budgets and control of corruption are non-alternative measures to improve citizens’ attitudes toward

tax compliance. These two objectives should be jointly pursued, as they are supposed to work

through different, albeit connected, channels (Prichard et al., 2019). Consequently, this paper also

enriches the set of possible strategies designed to strengthen tax morale, adding to those recently

issued by the OECD (OECD, 2019) and World Bank (Prichard et al., 2019).

The remainder of the paper is organized as follows. Section two defines the hypothesis to test and

specifies the empirical methodology. Section three describes the data, while section four presents

the results of the empirical investigation. Finally, section five reports some concluding remarks and

discusses the policy implications of our results.

2. Methodology and background hypothesis

The term fiscal transparency may be applied in cases of extensive information disclosure on how

governments obtain, allocate and manage financial resources. In the search for a widely accepted

international standard, the International Monetary Fund (IMF) has elaborated a code1 with the

ultimate aim of maximizing the clarity, reliability and reporting of public finance through time. In

the IMF view, fiscal transparency improves government management of public resources and

provides markets and citizens with the necessary information to hold governments accountable: the

adoption of fiscal transparency rules brings about greater awareness in the markets and in

individuals. The adoption of the above code, or of more general rules inspired by higher levels of

fiscal transparency, is among the priorities of many governments, and signals a trend toward the

1 The code rests on four main pillars: 1. fiscal reporting; 2. fiscal forecasting and budgeting; 3. fiscal risk analysis and management; 4. Resource revenue management; along with a set of specific rules and practices (IMF, 2018).

increasing understanding in many countries of the role of fiscal transparency for government

efficacy, suggesting significant future policy effects in the markets.

As argued above, a more transparent public budget and an accountable decision-making process

alleviate the informational problems and distortions in the government-taxpayers relationship with

an effect on the incentive constraints. The effective payoffs improve and this translates, given the

level of taxation, into greater propensity of the taxpayer to meet tax obligations. Tax morale, a

hidden but important component in the implicit contract between government and taxpayers,

improves as well.

The seeds of the idea that tax morale depends on the nature of the relationship between government

and citizens have already been sown by part of the literature. Feld and Frey (2007) strongly support

the notion that tax morale is shaped by factors such as “(a) the fiscal exchange where taxpayers get

public services for the tax prices they pay; (b) the political procedures that lead to this exchange;

and (c) the personal relationship between the taxpayers and the tax administrators” (Feld and Frey,

2007, p. 115). In line with this perspective, Dell’Anno (2009) states that taxpayers’ willingness to

comply with tax rules is positively influenced by the perception of government effectiveness.

Torgler and Schneider highlight (2009, p.231) that “if citizens perceive that their interests

(preferences) are properly represented in political institutions and they receive an adequate supply

of public goods (…) their willingness to pay tax increases”. Alasfour et al. (2016) add that “lack of

transparency and accountability in the use of public funds have the effect of building public distrust

both in the tax system and the government, which in turn is believed to increase the level of tax

evasion” (p. 151).

We put forward the notion that tax morale depends on the opacity of the relationship between

government and taxpayers and argue that fiscal transparency improves tax morale because it eases

informational problems. Indeed, more transparent budgetary decisions make the decisional process

clearer in the eyes of the citizens (Feld and Frey’s factor b); this, in turn, fosters government

accountability (factor c) and restores the fiscal equivalence between public goods and tax prices

(factor a). Consequently, fiscal transparency becomes effective only when it entails the

intelligibility and usability as well as availability of budget and financial information to non-

specialists (most citizens and many public officials) (Justice and Dülger, 2009, p.263).

Ultimately, it should also be pointed out that more information reduces both problems of adverse

selection and moral hazard, hence affecting tax morale on different accounts. For instance, it

reduces the spending bias in public finances arising from voters’ (principals’) fiscal illusion (von

Hagen and Harden 1995; Kopits and Craig, 1998), i.e. a “disconnect between what citizens expect

from government and what they are willing to pay” (Ebdon and Franklin, 2006, p. 444). But it also

hinders policymakers’ opportunistic behaviors in fighting corruption (De Simone et al., 2017) and

makes their choices more accountable.

Consistently with the above arguments, we formulate and test the following hypothesis:

H1: Fiscal transparency is positively correlated with citizens’ tax morale.

This hypothesis and its underlying theoretical framework can be aligned with the conceptual

framework for policy innovations in tax compliance by Prichard et al. (2019). According to their

theory of change, facilitation, enforcement and trust are key drivers for tax reform. Trust, in

particular, influences the aspects of tax morale that are not conditional on intrinsic individual values

and ethics, namely those related to government performance. In fact, governments and tax

authorities should refer to four key drivers of trust to improve tax morale: fairness, equity,

reciprocity and accountability. While fairness and equity “fall within the traditional remit of tax

reform efforts”, reciprocity and accountability “depend on the broader actions of governments

beyond tax agencies in delivering reciprocal services or expanding the extent of political

accountability” (Prichard et al., 2019, p.26). Therefore, from an operational perspective, fiscal

transparency has the potential to improve tax morale when itis implemented in a manner that

increases the awareness that tax revenues lead to the provision of the desired public goods and

services (i.e. reciprocity), and that improves the accountability of governments.

However, the ways in which fiscal transparency is effectively implemented do not depend only on

the institutional and political environment, but also on the goals of reforms. Different models of

democracy underpin different goals, and the implementation of transparency may vary accordingly.

Justice and Dülger (2009) highlight that a protective model of democracy “emphasizes the

importance of protecting citizens from over-reaching governmental power”, while a developmental

model of democracy promotes the “direct involvement of citizens in public decision making […]

and active citizenship” as purposes of democratic governance (Justice and Dülger, 2009, p.257).

While in theory a greater degree of fiscal transparency follows both forms of democracy, the

effective provision of information would change according to the different goals of the protective

and developmental schemes. For example, reforms with a developmental outcome may include

promoting spaces of engagement between taxpayers and government (e.g. consultations), while

those focused on enhancing accountability and responsiveness to citizens’ material interests may

serve a protective model of democracy. Nonetheless, it is worth stressing that both types of reforms

may ultimately improve the legitimacy and trustworthiness of a government, fostering quasi-

voluntary compliance and creating a positive environment and political support for further reforms

to enhance tax enforcement. In fact, although the present article focuses specifically on tax morale,

reforms and innovations aimed at improving tax revenues should tackle competing needs

(facilitation, enforcement and trust) by adopting a holistic approach (Prichard et al., 2019).

Given the multidimensional feature of the factors affecting tax morale, we specify a multilevel

model to take both individual specific characteristics and country-level variablesinto account, and

simultaneously investigate micro and macro data. Indeed, variations in individual attitudes towards

tax duties can be explained through two dimensions: one is at the individual level (level 1),

concerning characteristics such as education or socio-economic status; the other is the contextual

level (level 2), referring to features such as GDP per capita, the tax burden, the level of corruption

in the country, or, as we argue, the degree of fiscal transparency in public finances. Failing to take

into account this nested structure of the data generally leads to biased standard errors (Rabe-Hesket

and Skrondal, 2008). Multilevel mixed-effects modelling is designed to tackle such

multidimensional phenomena and allows observations to be analysed on units clustered within

groups – i.e. with a hierarchical structure. More specifically, multilevel modelling lets the

regression specification include both level-1 and level-2 variables and ensures the testing of three

types of relationship: lower-level direct effects (level 1 on level 1), cross-level direct effects (level 2

on level 1), and cross-level interaction effects (level 2 and level 1 jointly on level 1) (Aguinis et al.,

2013).

We build our empirical model as follows. In the first stage, we run a simple random-effects

ANOVA to measure the amount of variance of the dependent variable that can be explained at the

country level. The empirical model we estimate is the following:

yij= β0j + εij

where

β0j = β0 + υ0j

In this specification, yij is the dependent variable (tax morale) for the i-th individual in country j; β0j

is the intercept comprising a grand mean β0 (i.e. the mean across all the individuals and all the

countries) and an error term υ0j, which explains the deviation of the mean of each country j from the

grand mean; finally, εij is the individual error term, which shows the individual deviation from the

mean of the country of residence.

Building on this simple specification, if we use X to denote the level-1 (individual)set of

explanatory variables and Z the level-2 (country) set of explanatory variables, the model may be

written as follows:

yij= β0j + β1Xij + εij

where

β0j = β0 + β2Zj + υ0j.

Substituting the latter in the former, our model becomes:

yij= β0 +β1Xij + β2Zj + εij + υ0j

Our empirical specification includes both the individual-level set of variables, X, and the country-

level set of variables, Z. The application of a multilevel mixed-effects procedure allows us to extract

information from the unexplained variance both at country level and individual level, and test H1.

Before turning to illustrating the results, it is worth noting that since our data lacks any source of

exogenous variation, the estimates have to be taken as an attempt to search for conditional

correlations. Indeed, the cross-sectional analysis presented in the following sections cannot

definitively disentangle the causal nature of the nexus between fiscal transparency and citizens’ tax

morale because of a potential omitted variable bias and/or reverse causality issues. Yet we believe

that this investigation might contribute to the knowledge of the inner nature of tax morale by

highlighting the interlinkages of the latter with the amount of information disclosure on public

finances.

3. Data

Individual level data are drawn from waves four, five and six of the World Values Survey (WVS),

and extract macro country-level data from multiple sources. To make our data manageable and

consistent, we drop countries for which we have no comparable set of observations and focus on 11

years running from 2003 to 2013, which is the time interval for which selected fiscal transparency

data are available. The residual set of countries is sufficiently heterogeneous in terms of socio-

cultural, institutional and economic stratification to study the tax morale-fiscal transparency

interplay. The selected countries are thus as follows: Algeria, Azerbaijan, Australia, Brazil,

Bulgaria, Belarus, Canada, Chile, China, Colombia, Cyprus, Ethiopia, Estonia, Finland, Georgia,

Germany, Ghana, Hong Kong, Hungary, India, Iran, Italy, Japan, Kazakhstan, South Korea,

Lebanon, Malaysia, Mali, Moldova, Morocco, the Netherlands, New Zealand, Nigeria, Norway,

Pakistan, Peru, the Philippines, Poland, Romania, Russia, Singapore, Vietnam, Slovenia, South

Africa, Spain, Sweden, Switzerland, Thailand, Trinidad and Tobago, Turkey, Ukraine, Egypt, the

United States, Burkina Faso and Uruguay. According to the WVS waves, some countries were

observed in two different years.2 The following sub-sections describe the main variables we use in

the analysis.

3.1 Citizens’ tax morale

We extract a proxy of tax morale from the WVS. Among other questions, the survey asks

individuals whether they would be ready to “cheat or evade taxes if they had the chance”. The scale

of the answer ranges from 1 to 10 (where the higher the score, the greater the declared propensity is

to evade taxes). We reverse this scale, and hence lower values signal a higher propensity to evade,

with the extreme value of 1 indicating that “cheating is always justified”. Because of the ordinal

nature of our dependent variable, we perform a multilevel ordered logit.

We are aware that this variable has some measurement limitations. The first is the lexicon. Torgler

(2004) highlights that this same question about people's attitudes to cheating on tax payments may

mean different things in different contexts, depending on the culture of the country, or even

depending on the translation in different languages. Of course, this is a typical problem of

comparative cross-country large-scale surveys, which, unfortunately, are often the only sources of

variables detecting individual attitudes. A second problem relates to the measurement of the

phenomenon. In an attempt to search for alternative measures, Luttmer and Singhal (2014), for

example, measure tax morale indirectly through the difference between expected evasion and actual

evasion. However, this methodology is also far from flawless and one can argue that the method

provides an average level of tax morale, not an individual attitude. Due to the lack of valid

alternatives, and because it covers a broad set of countries and years, the WVS supplies a measure

of tax morale which has been extensively used by the literature, though with the necessary caveats

(Daude et al. 2012). Moreover, it has been observed that the variables drawn from the WVS give an

2These countries are: Argentina (2006, 2013), Australia (2005, 2012), Chile (2006, 2011), China (2007, 2012), Colombia (2005, 2012), Cyprus (2006, 2011), Egypt (2008, 2013), Germany (2006, 2013), Ghana (2007, 2012), Hong Kong (2005, 2013), Iraq (2004, 2006, 2012), Japan (2005, 2010), Korea Rep. (2005, 2010), Kyrgyz Republic (2003, 2011), Malaysia (2006, 2012), Mexico (2005, 2012), Morocco (2007, 2011), the Netherlands (2006, 2012), New Zealand (2004, 2011), Peru (2006, 2012), Poland (2005, 2012), Romania (2005, 2012), Russian Federation (2006, 2011), Rwanda (2007, 2012), Slovenia (2005, 2011), South Africa (2006, 2013), Spain (2007, 2011), Sweden (2006, 2011), Thailand (2007, 2013), Trinidad and Tobago (2006, 2011), Turkey (2007, 2011), Ukraine (2006, 2011), the United States (2006, 2011), Uruguay (2006, 2011).

initial sense “of the importance of tax morale […] [and] about attitudes towards tax evasion”

(Luttmer and Singhal, 2014). The average tax morale by country is reported in Table 1.

[TABLE 1 ABOUT HERE]

3.2 Main covariate: fiscal transparency

The most widespread measure of fiscal transparency is the Open Budget Index, which grants

comparability for only 40 countries, biannually, from 2006 to 2012. Since we need to rely on as

comprehensive a measure of fiscal transparency as possible, we prefer the alternative measure

recently provided by Wang et al. (2015). This index is built on the basis of information reported in

the Government Finance Statistics (GFS) yearbooks and is available every year from 2003 to 2013.

The GFS is compiled through the reports of the IMF Statistics Department, and therefore measures

the disclosure of information on liabilities, financial assets, and nonfinancial assets, and contains

data from the statements of the sources and use of cash, the statements of government operations

and the statements of other economic flows for general governments, central governments and

budgetary central governments.

Despite the different sources and calculation, it turns out that the GFS index is highly correlated

with other measures of fiscal transparency, including the OBI (Wang et al., 2015), and it has been

considered a reliable measure of fiscal transparency for panel data investigation (Cicatiello et al.,

2017; De Simone et al., 2017).3

3.3 Individual-level controls

We choose individual-level covariates following the literature on tax morale. Previous contributions

on the issue suggest that the socio-demographic profile of citizens significantly shapes their tax

morale. As already discussed, different individual characteristics influence the attitude towards tax

obligations. These include gender, marital status, level of education, employment status, and self-

reported social status. We include all of these among our covariates.

3 An in-depth discussion on the differences between indexes of fiscal transparency and relative usability can be found in Cicatiello et al. (2017).

The evidence shows that, under the same conditions, women pay more attention to ethics (Lago-

Peñas and Lago-Peñas, 2010) and are less risk-averse (Bertrand, 2011). For these reasons, women

usually display a higher level of tax morale. Age is also positively correlated to tax morale: the

economic goals attained, as well as the nature and value of relationships developed with others over

the years, make older people less prone to risk and less willing to undergo sanctions (Tittle, 1980;

Torgler and Schaltegger, 2005; Torgler, 2007).

There are two reasons why marital status is suggested to be relevant to tax morale: first, in some

countries it is correlated with special tax treatments and may therefore be connected with the

perceived tax burden, hence with the attitude to paying taxes (Song and Yarbrough, 1978); second,

marital status influences the social network in which individuals are constrained and this affects tax

morale (Torgler and Schaltegger, 2005; Tittle, 1980).

The correlation between education and tax morale is a priori ambiguous. On the one hand, more

highly educated people are better informed about tax laws and about the sanctions for breaching

those laws. They are also presumably more aware of the need to pay taxes in order to finance public

expenditure. On the other hand, more highly educated people are also better informed about

government failures in providing public goods and services. They could therefore be more critical

about the importance of contributing to public finance by paying taxes (Torgler and Schaltegger,

2005).

To explore the correlation between education and tax morale, one has to include income among the

regressors, since education might lead to a higher income, which is also supposed to drive tax

morale. The WVS does not contain any income variable, but instead includes self-reported

socioeconomic status. We will employ the latter in our analysis, bearing in mind that although

objective economic conditions and self-perceived wealth might be connected, they do not overlap

perfectly (Sosnaud et al., 2013). Overall, there is no consensus in the literature about the link

between income (socioeconomic status) and tax morale.4 On the one hand, richer people experience

higher returns from evading income and presumably have lower risk aversion due to the lower

marginal effect of a possible sanction (Pommerehne and Frey, 1992), all suggesting that rich people

are less prone to tax compliance. On the other hand, the social burden of sanctions might be

perceived as more pronounced for those who think they are part of a more privileged social class,

which would suggest a higher level of tax morale.

Since our specifications do not include income, employment status might, at least partially, reflect

wealth differentials among respondents (this is clear when considering the difference between 4 Doerrenberg and Peichl (2017) and Alm and Torgler (2006) reach contrasting results on the issue.

unemployed, part-time and full-time employees). Some hypotheses on the interconnections with tax

morale can be put forward for specific employment statuses; this is the case of self-employed

workers, who feel the weight of taxation on their income more strongly, given the non-automatic

nature of tax deduction from their wages (Russo, 2013). For this reason, our estimates include a

dummy that takes the value 1 for self-employed respondents.

Following the literature, we also include in our analysis a set of covariates capturing citizens’

opinions about the value of the state and the institutional setting: we include individual-level

indicators of national pride and support for democracy. As Torgler (2004) points out, national pride

leads to greater tax morale since it strengthens the sense of belonging to one group and yields

stronger cooperative behavior. Since democracy, more than other political systems, allows citizens

to shape government decisions on public resources allocation, a positive correlation would be

expected between support for democracy and tax morale (Torgler, 2005). For similar reasons, those

who favor redistribution should reveal a more positive attitude to tax compliance, since tax

collection allows redistributive policies (Lago-Peñas and Lago-Peñas, 2010). Finally, we also

include one variable that measures religiosity (i.e. church membership), since the literature

emphasizes that religious faith can increase tax morale (Daude et al., 2012).

All the individual-level covariates are presented in Table 2, where summary statistics are also

reported.

[TABLE 2 ABOUT HERE]

3.4 Country-level controls

As well as individual characteristics, tax morale is heavily influenced by contextual factors. Hence

controlling for aggregate variables is particularly important when the set of countries is rich and

diversified. This is particularly true for our dataset, which encompasses fairly heterogeneous

countries. For this reason, the set of covariates in our analysis will include numerous country-level

controls to account for this heterogeneity.

First, we control for the level of GDP per capita, which is supposed to account for a good amount of

heterogeneity between countries. Although there is no clear evidence of a link between individuals’

wealth and attitudes to taxation, Lago-Peñas and Lago-Peñas (2010) have shown that people living

in richer regions are endowed with a lower level of tax morale.

Second, our regressions include the volume of tax revenues as a percentage of GDP. Counter-

intuitively, tax revenues may exert opposite effects on tax morale. A higher level of taxation as a

percentage of GDP usually signals a correspondingly higher level of public goods and services.

Hence, while this could mean a better attitude to taxation when public finance is allocated

efficiently, when the level of inefficiency and waste in public finance allocation is higher, a high

level of tax revenue feeds into taxpayers’ resentment and reduces tax morale. Moreover, to a certain

extent, tax morale may itself influence the propensity to pay taxes: Luttmer and Singhal (2014) note

that “weak tax morale could lead to low compliance, low revenue, and poor state capacity and

provision of services, thereby further reducing tax morale” (p.158).

Third, we include in the set of aggregate regressors the direct tax burden as a percentage of

revenues. It is intuitive to presume that a heavy tax burden hampers individuals’ tax morale: a

higher tax burden has been proved to generate “tax fatigue” and dampen tax morale (Lago-Peñas

and Lago-Peñas, 2010).

Finally, we also control for corruption under the hypothesis that this may significantly shape public

finance (González-Fernández and González-Velasco, 2014): more specifically, we posit that

corruption negatively influences taxpayers’ willingness to contribute to the state’s activity because

it promotes distrust in institutions by eroding the quality of the relationship between citizens and

government, and it reduces the moral cost of evading tax (Litina and Palivos, 2016; Alasfour et al.,

2016; Alm et al., 2016; Timmons and Garfias, 2014; Rosid et al., 2018). Since a recent line of

research connects fiscal transparency to corruption (De Simone et al., 2017; Cucciniello et al.,

2017), we include corruption among the regressors also to test whether the correlation between

fiscal transparency and tax morale is unmediated. As a measure of corruption, we rely on the World

Bank’s Control of Corruption Index, as included in the Worldwide Governance Indicators (WGI).5

Table 3 reports summary statistics by country for all the country-level controls used in this study

alongside those calculated for GFS.

[TABLE 3 ABOUT HERE]

4. Results

5 This index reflects perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as the “capturing” of the state by elites and private interests. It ranges from approximately -2.5 (weak) to 2.5 (strong) governance performance, with higher scores corresponding to better outcomes.

The average tax morale calculated by country (countries are sorted according to this average) and

the corresponding standard deviation are reported in Figure 1.

[FIGURE 1 ABOUT HERE]

The data show that for most countries in the sample the average is quite high, ranging between 8

and the maximum of 10 (only Serbia falls below the seven-point scale). This suggests that on

average, in all countries, there is a broad consensus about the idea that cheating on taxes is

considered an action against a social obligation: a result that is not novel and has already been

highlighted by previous contributions (Luttmer and Singhal, 2014).

In our data, instead, tax morale displays more cross-country variability. If countries are listed

according to their average values of tax morale, no Western European country is among those in the

top 25%, while only one, France, features in the bottom 25%. All the others are concentrated in the

middle of the ranking. Eastern European countries, on the other hand, fall in the middle of the

ranking or in the bottom 25%. Latin American countries are mostly at the middle-top of the ranking,

with the exception of Brazil, which is in the bottom 25%. African countries as well as Asian

countries are distributed throughout the ranking. The overall picture is consistent with that provided

by Daude et al. (2012) who focused on 2005 WVS data.

Inspection of the tax morale standard deviation values calculated by country reveals that within

country individual data values are quite close to the mean. All the countries in the sample display a

ratio between standard deviation and mean (i.e. the coefficient of variation) lower than 0.5. For

more than 37% of the countries in the sample this value is lower than 0.20.

Overall, this picture suggests extensive cross-country heterogeneity in tax morale. Our empirical

investigation attempts to explain this heterogeneity and investigate the nature of tax morale. More

specifically, we perform multilevel regression analyses to identify the factors correlated and

potentially influencing tax morale. Table 4 reports coefficient estimates indicating the marginal

effect of the regressors on the dependent variable. Robust standard errors are also reported in

brackets.

In total, we test four models. We run an intercept only model (random effects ANOVA) to assess

whether cross-country heterogeneity in the dependent variable justifies a multilevel analysis (results

are in column 1). In model (2) we add individual-level variables to our specification, and include in

model (3) a fiscal transparency measure (GFS) alongside other country-level covariates that are

supposed to exert an influence on citizens’ tax morale: namely GDP, rule of law, tax revenue and

the direct tax burden. Finally, in model (4) we augment this specification by including a country-

level index of corruption. As stressed above, if the effect of fiscal transparency on tax morale is

channeled through the reduction in corruption, then the inclusion of this covariate should make the

GFS index not statistically significant; if this is not the case, we would draw the conclusion that

fiscal transparency also exerts a direct effect on citizens’ tax morale.

[TABLE 4 ABOUT HERE]

The results of model (1) confirm the previous intuition (see Figure 1). In a nutshell, the variance of

the intercept is significant, and the LR test versus order logit regression registers the value 7235.76,

with a p-value well below 0.01. This suggests that cross-country differences account for a

considerable proportion of the total heterogeneity in tax morale and confirms the adequacy of the

multi-level approach.

The effects of individual-level controls (model 2) are mostly in line with expectations. Tax morale

is found to be higher among women, positively correlated with age, education, national pride and

support for democracy, while it is negatively correlated with marital statuses other than married.

The correlation with subjective social status turns out to be ambiguous. Compared to the lowest

subjective social class status, the highest is associated with statistically significantly lower tax

morale. Nevertheless, those who state they are in the social status immediately after the first present

statistically higher tax morale. Being an active member of the religious community is associated

with higher tax morale, while no effect is found for inactive members. Instead, self-employment is

associated with lower tax morale.

When we include the country-level variables in models 3 and 4, all the ceteris paribus correlation

coefficients calculated for micro-level regressors remain statistically significant and show

approximately the same magnitude. This confirms their robustness.

Crucially, model (3) proves true our initial hypothesis (H1): the coefficient on GFS is positive and

significant, signaling that a higher degree of fiscal transparency is associated with a higher level of

tax morale. This result confirms that, by disclosing comprehensive fiscal information, the

government achieves a substantial effect on citizens’ attitudes to tax obligations and tax morale: an

effect that goes beyond the simple issuing of information on fiscal parameters (e.g. audit

probability), as it involves the vertical relationship between citizens and government (Torgler,

2002). The reason is that fiscal transparency alleviates the informational problems in the

government-taxpayers relationship. And yet, it may be imagined that the working of fiscal

transparency as a contractual device depends on who the actors are in this relationship. For

example, the relevant incentive constraints for individual taxpayers undoubtedly differ from those

of private firms: while individuals attach great importance to the level of taxation, firms tend to

place more weight on the level of infrastructure and on the allocation of public expenditure. Fiscal

transparency is found to improve the visibility of government activity to both domestic and external

actors, as it signals to both the electorate and the market a government’s willingness and efforts to

reduce rents and promote competition (De Simone et al., 2017, p.3).

Model (3) also includes country-level independent variables: GDP per capita is associated with

higher tax morale, while tax revenue and tax burden (significant at 10%) appear to influence

individual attitudes to taxation negatively.

By including corruption (model 4), the coefficient on GFS maintains its size and significance,

suggesting that the effect of fiscal transparency on tax morale is not intermediated by corruption.

This result is interesting, as it confirms the important role of fiscal transparency in tackling tax

noncompliant behavior as a separate device from corruption. In line with this argument, some

scholars have provided a definition and a measurement of transparency encompassing corruption

control and institutional quality (e.g. Drabek and Payne, 2002). Remarkably, by including

corruption among the regressors, the coefficient of GDP becomes significantly negative: a result in

line with the findings of Lago-Peñas and Lago-Peñas (2010). The coefficient on corruption, on the

other hand, is positive and significant. This finding is in line with previous research (Alasfour et al.,

2016), and suggests that corruption, being concerned with inefficient use of public resources and

unfair treatment of citizens, harms tax compliance by eroding citizens’ trust in the tax authority

(Torgler, 2004).

We are aware that our analysis has two principal limitations. The first is a possible problem of

reverse causality. The evidence, in fact, does not necessarily imply a causal relationship: it is

possible to argue to some extent that it is tax morale which influences fiscal transparency. More tax-

compliant citizens may ask for a higher disclosure of fiscal information in order to be better

informed on the government’s activity of public goods provision. However, the link between fiscal

transparency and tax morale holds only for lower levels of tax morale, as we will show in the next

section. Thus, it is more likely that the causal arrow goes from disclosure of information to

willingness to pay taxes than in the opposite direction. The second problem is a possible problem of

an omitted variable (e.g. the efficiency/effectiveness of tax authorities). A common factor may

jointly influence fiscal transparency and tax morale and may cause the apparent correlation between

the two variables. Nevertheless, this issue can be addressed by the inclusion of GDP per capita

among the regressors, which controls for state capacity other than wealth (Hollyer et al., 2014).

5. Robustness checks

The results reported in the previous section show that a higher degree of fiscal transparency is

associated with higher tax morale. We now explore this relationship further. One of the assumptions

of order logit is that the size and significance of the estimated coefficients are the same regardless

of the values of the dependent variable. In our case, this assumption means that GFS has the same

positive effect both on those who state the lowest value of tax morale (1 out of 10) and on those

who score 9 out of 10. This assumption is indicated as parallel lines or parallel regression

assumptions (Williams, 2006). A more realistic analysis should take into account that those with a

higher tax morale could be less sensitive to a variation in fiscal transparency, while those that

justify tax evasion could be more likely to change their mind if the context changes. For this reason,

we perform a generalized ordered logit with clustered standard errors, relaxing the assumption of

parallel lines6 (Williams, 2016).

Generalized ordered logit models perform a series of binary logistic regressions. The first category

(tax morale equal to 1) is tested versus categories 2, 3, 4, 5, 6, 7, 8, 9 and 10. Categories 1 and 2 are

then tested versus 3, 4, 5, 6, 7, 8, 9 and 10; and so on. The coefficients, reported in table 5, should

be read as follows: the first column tests the probability of an increase in tax morale from 1 to any

higher value; the second column tests the probability of an increase in tax morale from 1 or 2 to any

higher value, and so on. The estimated betas are positive but decreasing in magnitude, and

significant up to a score of 4. Thus, GFS has a positive relationship with tax morale when tax

morale is low, but not when tax morale is already higher than 5 (out of 10).

[TABLE 5 ABOUT HERE]

In other words, the effect of fiscal transparency on citizens’ attitudes to tax obligations is non-

monotonic and decreases as the level of tax morale increases. This result may provide very

interesting policy implications. It implicitly suggests that fiscal transparency is an effective

government instrument when the aggregate level of tax morale is low. This is particularly true in

developing countries and in countries with high levels of tax evasion (Feld and Frey, 2007; Torgler

and Schneider, 2009). In any event, this result calls for a further inquiry into the features of the

6 We use the Stata user-written command gologit2, using the option “auto” on a rescaled dependent variable to test which variable respects the parallel lines assumption. We then use this output to compute a model with the original dependent variable. The parallel lines assumption is not respected by GFS, corruption, tax revenue and support for democracy.

psychological contract between tax authorities and taxpayers (perhaps across various cultural and

institutional settings), which does not appear to be uniform across the latter. Crucially, our analysis

suggests that these studies should analyse the contexts in greater detail (e.g. national or sub-national

level) and focus on the specific implementation of fiscal transparency with the aim to deliver an

effective policy recipe.

6. Policy orientations and conclusions

Disclosure of fiscal information can be a powerful instrument for building fiscal legitimacy and for

combating dissatisfaction with government fiscal policies. This paper sought to contribute to the

literature on the nature of tax morale and explored the hypothesis that the latter is influenced by

fiscal transparency. Relying on WVS wave 4 (partially), 5 and 6 data, and using multilevel mixed

modeling, we tested the hypothesis that access to larger flows of information on government fiscal

accounts and financial transactions increases citizens’ willingness to pay taxes. Our results confirm

the existence of a positive relationship between tax morale and tax transparency. This shows that

citizens pay more easily if they better understand the fiscal structure they are feeding.

According to our framework, tax morale not only increases quasi-voluntary compliance but also

creates a positive environment for tax reforms. While paying taxes is never pleasant for taxpayers,

the lower aversion we found in the face of greater tax transparency suggests four policy

interventions: tax simplification, localized public expenditure information, new tax practices that

take into account taxpayers recurring to the development of digital platforms, and the development

of lower social inequality through fiscal mechanisms. Let us describe these four possible actions.

Fiscal simplification hinges on the idea that people better understand how much they pay when the

number of taxes is lower and payments are more concentrated in time. Many studies (see for

example Torgler, 2007) have indeed proven that taxpayers are more distrustful of politicians and

more doubtful of the benefit of public spending if they pay many different types of taxes and if they

are requested to pay more often. Simplification makes information-sharing less costly and easier to

understand (Prichard, 2019), fostering the idea that governments and tax authorities are accountable

as they do not try to hide behind complicated procedures, thus increasing tax morale of taxpayers.

The second policy action government can pursue is releasing more information on local tax

expenditures. Disclosing the overall public expenses together with the corresponding expenses

allocated to the taxpayers’ socio-economic context (for example, revealing what percentage is left

for local hospitals or schools expenses for each euro allocated to the tax structure) increases the

level of information for taxpayers, underlines the reciprocity of the tax system, and encourage tax

payments. In comparison to earmarking, this strategy may foster tax morale without legal bindings

and the consequent issue of budget rigidity.

The third is to foster technology advancement. Society 4.0 (or Society 5.0) increasingly

accommodates many of the daily schedules in instructions for programs and applications which

help the taxpayer to settle the flows of tax payments more easily. In addition, new platforms, which

facilitate the relationship between taxpayer and tax machine, promote tax transparency by making

more information available in a shorter time frame.

The fourth policy intervention to boost tax morale through fiscal transparency depends on the level

of income and wealth inequality. Many works (see for example Giraud, 1996) show that more equal

societies promote higher tax morale, and, correspondingly, the level of tax evasion appears to be

higher when social inequality is more pronounced. Thus, in most economies, if the taxpayer

understands better how his/her tax contributes to greater social justice, he/she will have less

aversion to paying taxes.

These four policy guidelines are broad in the sense that their specific implementation should take

into account the dimensions that, in each country, the literature has identified to promote greater tax

receptivity: the educational level of the population, the weight of fiscal illusion, the stability of

public accounts, and the composition of public debt.

The efficacy of policy actions also depends on political viability and the goals of the reform; where

citizens are educated and participative, a developmental view of democracy could lead to

experiments of participative public budgets. On the other hand, in the presence of a protective

vision of democracy, fiscal transparency could be implemented by disclosing information explicitly

focused on citizens’ material interests.

However, where the average level of education is low, information may be already available but of

limited use to taxpayers due to scarce “tax literacy”. In these instances, taxpayer education

programs may represent a viable channel for improving tax morale (OECD, 2015).As a matter of

fact, transparency is effective only when taxpayers are engaged – at least partially – in government

decision-making in order “to make successful demands on governments for public benefits from tax

revenues” (Prichard et al., 2019, p.14) through consultations, public hearings and possible related

submission of proposals. In line with this reasoning, policy solutions should be tailored according to

the specificities of different contexts.

Political incentives for tax reforms are weak in countries where the tax morale is low. Since we find

that the correlation between fiscal transparency and citizens’ attitude towards tax obligation is not

uniform across all taxpayers, small increases in information disclosure about public budgets may

have incremental effects on tax morale, enhancing political support for current and future reforms.

This opens up new avenues for further context-related and policy-based researchon the

characteristics of citizens’ accountability (possibly at different levels and forms of information

provided) towards tax authority.

In sum, our analysis confirms the importance of the quality of fiscal institutions and good

governance in shaping individuals’ attitudes to taxation, and enriches the set of possible strategic

solutions that public administration can implement to better understand citizens’ relationships with

tax authorities and enhance individuals’ cooperative behavior in tax compliance. In this regard, it is

worth noting that tax reforms aimed at reducing tax avoidance and evasion have a greater chance of

success when they trigger the three drivers of tax compliance (facilitation, enforcement and trust) in

a synergic manner.

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Table 1: Average and standard deviation of tax morale by country

Country Av. Tax Morale

S.D. Country Av. Tax Morale

S.D. Country Av. Tax Morale

S.D.

Serbia 6.26 3.49 Mexico 8.64 2.48 Ecuador 9.09 1.59Algeria 7.12 3.19 Tunisia 8.69 2.29 Spain 9.10 1.61Philippines 7.20 3.17 G. Britain 8.71 2.07 Australia 9.10 1.75Zambia 7.34 2.85 Norway 8.72 1.91 USA 9.12 1.75Brazil 7.35 3.02 Thailand 8.72 1.74 Pakistan 9.15 1.56Moldova 7.45 2.69 Estonia 8.74 2.01 Chile 9.17 1.58S. Africa 7.61 2.85 Nigeria 8.76 1.74 Trinidad 9.17 1.84Mali 7.68 3.24 Romania 8.81 2.39 Canada 9.19 1.69Lebanon 7.82 2.56 Sweden 8.81 1.96 Egypt 9.21 1.69Malaysia 7.94 2.31 Italy 8.82 1.96 Cyprus 9.21 1.71India 7.97 3.02 Uzbekistan 8.83 1.90 Uruguay 9.22 1.64Russia 7.97 2.55 Rwanda 8.84 1.58 Argentina 9.22 1.86Iraq 8.12 1.99 Finland 8.86 1.91 Jordan 9.24 2.15Ukraine 8.16 2.24 Germany 8.86 1.78 South Korea 9.29 1.46France 8.18 2.52 China 8.91 1.86 Georgia 9.32 1.59Belarus 8.22 2.14 Switzerlan

d8.92 1.93 Vietnam 9.34 1.46

Kyrgyzstan 8.39 2.42 Slovenia 8.94 1.94 Morocco 9.35 1.65Kazakhstan

8.41 2.42 Netherland 8.97 1.83 Colombia 9.41 1.48

Singapore 8.45 2.15 Armenia 8.97 2.06 Indonesia 9.43 1.56B. Faso 8.48 2.28 Iran 8.97 1.99 Azerbaijan 9.49 1.44Guatemala 8.49 2.41 N. Zealand 8.98 1.86 Ethiopia 9.54 1.14Poland 8.60 2.10 Hungary 8.98 1.64 Japan 9.64 1.19Zimbabwe 8.60 2.01 Peru 9.00 1.70 Ghana 9.67 1.02Bulgaria 8.60 2.21 Hong Kong 9.01 1.62 Turkey 9.70 0.96

Table 2: Descriptive statistics of individual-level variables

Variable Description Obs. Mean St. Dev.Sex 1 if female 86847 0.52 0.50Age Age 86847 42.49 16.70Marital status 1=married 86847 0.55 0.50

2=living together as married 86847 0.07 0.253= divorced 86847 0.04 0.204=separated 86847 0.02 0.135=widowed 86847 0.06 0.236=single/never married 86847 0.26 0.44

Education level 1=lower 86847 0.26 0.442=middle 86847 0.48 0.503=upper 86847 0.26 0.44

Self-employed 1 if self-employed 86847 0.11 0.31Church membership 1=not a member 86847 0.62 0.48

2=inactive member 86847 0.18 0.383=active member 86847 0.20 0.40

Support for democracy 1=having a democratic system is very bad, 4=having a democratic system is very good 86847 3.45 0.72

National pride 1=not at all proud of nationality, 4=very proud of nationality 86847 2.75 0.97

Social class 1=lower class 86847 0.11 0.312=working class 86847 0.29 0.453=lower middle class 86847 0.37 0.484=upper middle class 86847 0.22 0.415=upper class 86847 0.02 0.13

Table 3: Average values of country-level variables

Country GFS Corruption GDP p/c Tax revenue

Direct tax burden Country GFS Corruption GDP p/c Tax

revenueDirect tax

burdenAlgeria 5.56 -0.47 3975.23 27.58 8.65 Mali 5.56 -0.34 680.39 11.90 28.82Azerbaijan 16.67 -1.12 5842.80 12.16 39.25 Moldova 16.67 -0.56 1450.13 19.57 4.83Australia 83.33 1.99 50001.38 22.43 70.31 Morocco 24.51 -0.36 2764.37 23.62 36.96Brazil 0 -0.14 11565.05 13.65 44.82 Netherlands 50 2.14 49900.20 20.98 47.47Bulgaria 16.67 0.059 5678.04 20.94 23.10 New Zealand 66.67 2.39 33257.23 30.68 65.02Belarus 16.67 -0.72 6152.34 15.00 6.32 Nigeria 5.56 -1.13 2106.74 5.46 95.67Burkina Faso 5.56 -0.35 528.28 12.06 23.26 Norway 83.33 1.97 88519.09 28.20 56.63Canada 33.33 1.96 46169.25 13.39 73.84 Pakistan 5.56 -1.06 1017.46 10.39 37.82Chile 33.33 1.40 12502.43 15.99 35.18 Peru 44.44 -0.39 3519.40 13.41 30.64China 5.56 -0.60 4142.04 10.29 27.79 Philippines 5.56 -0.58 2023.50 12.23 44.35Colombia 88.89 -0.43 6789.59 13.27 37.94 Poland 33.33 0.41 11962.09 17.06 27.74Cyprus 50 0.99 31815.33 44.51 38.20 Romania 33.33 -0.23 6260.25 17.15 33.98Egypt 16.67 -0.67 2128.02 13.91 40.98 Russia 100 -1.06 11121.51 14.05 3.63Ethiopia 0 -0.62 194.17 9.12 24.65 Singapore 33.33 2.17 38117.41 11.69 44.60Estonia 50 0.93 12481.93 1.27 40.45 Slovenia 16.67 0.90 23141.31 18.04 22.15Finland 50 2.35 44280.48 21.85 36.17 South Africa 33.33 0.13 7434.36 25.12 55.66Georgia 27.78 -0.22 2964.48 22.14 36.91 South Korea 8.33 0.50 21524.35 14.17 42.20Germany 50 1.79 38971.64 10.60 39.30 Spain 50 1.02 31394.89 14.59 40.71Ghana 16.67 -0.09 1471.97 14.87 35.91 Sweden 50 2.21 50923.17 27.11 17.00Hong Kong 100 1.64 31081.57 13.94 57.57 Switzerland 33.33 2.19 74781.38 9.88 39.30Hungary 66.67 0.34 13042.95 19.99 32.84 Thailand 30.90 -0.33 5542.78 16.27 44.22India 27.78 -0.28 859.34 8.95 41.26 Trinidad 11.11 -0.28 16627.41 26.12 64.65Iran 16.67 -0.50 5982.21 7.68 66.72 Turkey 66.67 0.05 10851.23 20.38 29.98Italy 16.67 0.40 38239.07 22.38 56.24 Ukraine 47.40 -0.87 2846.73 15.22 31.69Japan 100 1.46 44970.74 9.07 46.04 United States 54.89 1.28 47177.01 9.43 90.45Kazakhstan 33.33 -0.98 6107.71 13.08 45.18 Uruguay 33.36 1.13 12084.96 18.64 30.31Lebanon 5.56 -0.93 6593.05 15.16 23.40 Vietnam 16.67 -0.76 1161.47 21.47 41.82Malaysia 13.78 0.28 8676.57 15.40 66.61

Table 4: Results of a multilevel ordered logit regression with tax morale as dependent variable

(1) (2) (3) (4)Tax morale Tax morale Tax morale Tax morale

b (se) b (se) b (se) b (se)GFS 0.00*** (0.00) 0.00*** (0.00)GDP p/c 0.00*** (0.00) -0.00*** (0.00)Tax revenue -0.02*** (0.00) -0.02*** (0.00)Direct tax burden -0.00* (0.00) -0.01*** (0.00)Corruption 0.19*** (0.01)Age 0.01*** (0.00) 0.01*** (0.00) 0.01*** (0.00)Inactive church member 0.01 (0.02) -0.05*** (0.02) -0.04** (0.02)Active church member 0.11*** (0.02) 0.05*** (0.02) 0.02 (0.02)Female 0.18*** (0.01) 0.19*** (0.01) 0.19*** (0.01)Marital: together as married -0.19*** (0.03) -0.17*** (0.03) -0.19*** (0.03)Marital: divorced -0.13*** (0.04) -0.11*** (0.04) -0.11*** (0.04)Marital: separated -0.26*** (0.05) -0.25*** (0.05) -0.27*** (0.05)Marital: widowed -0.01 (0.03) -0.00 (0.03) 0.01 (0.03)Marital: single/never married -0.06*** (0.02) -0.06*** (0.02) -0.09*** (0.02)Education level: middle 0.10*** (0.02) 0.05*** (0.02) 0.06*** (0.02)Education level: upper 0.07*** (0.02) 0.04* (0.02) 0.05** (0.02)Self-employed -0.11*** (0.02) -0.06*** (0.02) -0.10*** (0.02)Support for democracy=2 -0.28*** (0.05) -0.27*** (0.05) -0.27*** (0.05)Support for democracy=3 0.06 (0.04) 0.06 (0.04) 0.06 (0.04)Support for democracy=4 0.42*** (0.04) 0.42*** (0.04) 0.42*** (0.04)National pride=2 0.10* (0.05) 0.08 (0.05) 0.06 (0.05)National pride=3 0.33*** (0.05) 0.30*** (0.05) 0.29*** (0.05)National pride=4 0.68*** (0.05) 0.65*** (0.05) 0.66*** (0.05)Social class: working class 0.10*** (0.02) 0.14*** (0.02) 0.13*** (0.02)Social class: lower middle class -0.03 (0.02) 0.01 (0.02) 0.02 (0.02)Social class: upper middle class -0.05* (0.03) -0.00 (0.03) 0.01 (0.03)Social class: upper class -0.26*** (0.06) -0.22*** (0.06) -0.20*** (0.06)Var(Constant) 0.12*** (0.00) 0.22*** (0.01) 0.18*** (0.01) 0.45*** (0.01)

Log-Likelihood -2.24e+05 -1.83e+05 -1.83e+05 -1.83e+05N 105344 86847 86847 86847Note: ***=p-value<0.01, **=p-value<0.05, *=p-value<0.10. Standard errors in parenthesis. Base category for Marital=Married; base category for Education level=lower; base category for Social class=Lower class.

Figure 1: Average tax morale by country and its variability. Tax morale is given by individuals’ answers to the question: “Do you justify cheating on taxes?” (data from WVS)

Table 5: Results of a generalized ordered logit model with tax morale as a dependent variable. The coefficients are reported just for GFS; individual controls are age, church membership, sex, marital status, education level, self-employment, support for democracy, national pride and social class. Country controls are GDP per capita, tax revenue, direct tax burden and corruption.

(1) (2) (3) (4) (5) (6) (7) (8) (9)Tax morale Tax morale Tax morale Tax morale Tax morale Tax morale Tax morale Tax morale Tax morale

b/(se) b/(se) b/(se) b/(se) b/(se) b/(se) b/(se) b/(se) b/(se)

GFS 0.012**(0.005)

0.010**(0.005)

0.010**(0.005)

0.008*(0.004)

0.006(0.004)

0.005(0.004)

0.004(0.004)

0.004(0.004)

0.004(0.004)

N 86847Note: ***=p-value<0.01 **=p-value<0.05 *=p-value<0.10. Standard errors (clustered by country) in parenthesis.