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Transcript of July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA The Morals of (Not) Paying...
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
The Morals of (Not) Paying Taxes and Receiving Benefits:
Economic, Institutional and Psychological Factors
Prof. Dr. DDr.h.c. Friedrich SchneiderDepartment of EconomicsJohannes Kepler University of LinzE-mail: [email protected]://www.econ.jku.at/schneider
Studien\TaxEvasion\2015\TaxMorale.ppt
Revised Version
July 7, 2015
1 of 47
Content
1) Introduction
2) Some Theoretical Considerations about Tax (Benefit) Morale
3) What Shapes the Attitudes to (Not) Paying Taxes or Receiving (Unjustified) Benefits? The Case of Austria
4) What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland
5) Local Autonomy, Tax Morale and the Shadow Economy
6) Summary and Conclusions
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 2 of 47
(1) The puzzle of the economic theory of tax compliance is:
Why do people pay taxes?
Especially in the view of the low deterrence in most
countries, either because of a low intensity of control or
small penalties, taxpayers should evade more than they
actually do, i.e. compliance is much too high.
1. Introduction – 1.1 Why do people pay taxes?
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 3 of 47
Figure 1.1: “Do you justify cheating on taxes?”Results of the EVS 1990, 1999, 2008 for 5 countries in %
1. Introduction – 1.1 Why do people pay taxes?
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
1990 1999/00
2008/09
1990 1999/00
2008/09
1990 1999/00
2008/09
1990 1999/00
2008/09
1990 1999/00
2008/09
Austria Denmark Finland Netherlands Sweden
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
85.9 84.277.3 77.4
84.5 88.5
67.377.6
87.7
67.6 71.481.0 77.5 77.4
81.3
3.5 4.99.7 7.3 3.5 2.7
13.8 9.53.4
9.6 9.14.8 8.3 5.9 6.5
never always
in P
roze
nt
Source: European Value Survey, longitudinal data file; May 2015.
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Figure 1.2: “Do you justify claiming state benefits you are not entitled to?”, Results of the EVS 1990, 1999, 2008 for 5 countries in %
1. Introduction – 1.1 Why do people pay taxes?
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
1990 1999/00
2008/09
1990 1999/00
2008/09
1999/00
2008/09
1990 1999/00
2008/09
1990 1999/00
2008/09
Austria Denmark Finland Netherlands Sweden
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0 92.184.6
76.3
93.3 95.2 96.1
80.288.3 92.1 94.2 93.9 90.5
85.4 87.9
1.3 4.5 6.11.6 1.3 1.2 5.6 2.8 1.7 1.2 1.5 1.3 3.3 4.0
never always
in P
roze
nt
Source: European Value Survey, longitudinal data file; May 2015.
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(2) Two strands of arguments ((i) and (ii)) are put forward to
close the gap between theory and facts:
(i) On the one hand, the probability of being detected is
subjective.
First, individual perceptions of being caught when
cheating on taxes or benefits are much higher than
objective probabilities of detection.
Second, subjective probabilities of being caught exist in
the sense that the individual ability to evade taxes
strongly varies among subgroups of the population.
1. Introduction – 1.1 Why do people pay taxes?
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 6 of 47
(ii) On the other hand, tax morale serves as an explanation
for high compliance rates in OECD countries.
Allingham and Sandmo (1972) argue that tax morale
residually explains the level of tax compliance
independent of tax policy and the behaviour of public
authorities.
This argument is consistent with the view that
fundamental social norms, (like religion or civic duty)
shape tax morale.
1. Introduction – 1.1 Why do people pay taxes?
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 7 of 47
Three goals:
(1) If tax morale is used as an explanation why tax
compliance rates are so high, it is necessary to analyze
what shapes tax morale.
(2) This will be done for Austria (homogenous, mono-
cultural country) in part 3 and for Belgium, Spain and
Switzerland (non-homogenous, multi-cultural countries)
in part 4.
(3) In part 5 an additional analysis “explores” the relation
between local autonomy, tax morale and the shadow
economy.
1. Introduction – 1.2 Goals of this lecture
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 8 of 47
Intrinsic motivation (expressed as tax and benefit
morale) is therefore a key determinant in understanding
compliance behavior!
(1) Using Canadian data Torgler (2003) shows that tax
morale rises with financial satisfaction, age, patriotism,
trust in government, religiosity and deteriorates with
rising income.
(2) Torgler and Schneider (2004) emphasize the influence of
cultural differences in explaining tax morale and find
strong evidence for interactions between culture and
institutions.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
2. Some Theoretical Considerations about Tax (Benefit) Morale – 2.1 Tax and benefit morale literature
9 of 47
(3) Torgler and Schneider (2005) investigate tax morale in
Austria. Societal variables (e.g. perceived tax evasion,
patriotism, trust in legal system) are key determinants.
(4) To my best knowledge very few investigations of the
individual (taxpayer’s) decision on claiming unjustified
subsidies (e.g. by underreporting income) exists so far in
the economic literature; e.g. Orviska and Hudson (2003)
touch upon this issue.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
2. Some Theoretical Considerations about Tax (Benefit) Morale – 2.1 Tax and benefit morale literature
10 of 47
(5) From a theoretical point of view a subsidy is a negative
tax, but in empirical applications a separate investigation
is necessary, since
the theoretical determinants (e.g. probability of
detection) can differ, and
individuals may have different ‘opportunities’; some
may not have the opportunity to avoid/evade taxes,
but it may be feasible for them to claim unjustified
subsidies.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
2. Some Theoretical Considerations about Tax (Benefit) Morale – 2.1 Tax and benefit morale literature
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Four different types of (reciprocity) norms, which depend on
government policies, tax authorities’ behaviour and state
institutions, influence tax and benefit morale:
(i) First, citizens pay their taxes if their fellow citizens
contribute their fair share.
In that respect traditional deterrence policy is rather
delicate, because the tax office can mistakenly forget to
audit tax cheaters (who additionally tell their friends and
relatives about it).
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
2. Some Theoretical Considerations about Tax (Benefit) Morale – 2.2 Key factors influencing tax and benefit morale
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Four different types of reciprocity norms (cont.):
Also, continued public discussion about the decline of tax
morale serves the same purpose: honest taxpayers get the
impression that they are the last to remain (so stupid) to
comply with the tax code.
(ii) Second, the government provides public services to
citizens in exchange for their tax payments.
If the fiscal balance between public goods and tax prices
is violated by setting the tax prices too high, citizens
think they have a justification for evading taxes.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
2. Some Theoretical Considerations about Tax (Benefit) Morale – 2.2 Key factors influencing tax and benefit morale
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Four different types of reciprocity norms (cont.):
(iii) Third, citizens perceive their tax payments as
contributions to the ‘bonum commune’.
Hence, they are willing to honestly declare their income
even if they do not receive a full public good equivalent
to their tax payments (e.g. they are net contributors to
the welfare state).
(iv) Fourth, the way the tax office treats taxpayers in
auditing processes plays a crucial role.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
2. Some Theoretical Considerations about Tax (Benefit) Morale – 2.2 Key factors influencing tax and benefit morale
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(ad iv)
Feld and Frey (2005) argue that taxpayers and tax authorities
are engaged in a psychological tax contract.
This contract about fiscal exchange (tax revenues for the
delivery of goods and services) assumes that taxpayers and
the tax authority treat each other as partners of a contract, i.e.
with mutual respect and honesty.
If tax administrations instead treat taxpayers as inferiors (or
servants) in a hierarchical relationship, this tax contract is
violated and citizens have good reason not to stick to their
contract and to evade taxes.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
2. Some Theoretical Considerations about Tax (Benefit) Morale – 2.2 Key factors influencing tax and benefit morale
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(1) Determinants of benefit morale?
Taxpayers’/citizens’ attitude toward claiming
unjustified government benefits/subsidies.
(2) Determinants of tax morale?
Taxpayer’s attitude toward avoiding/evading taxes.
(3) Which impact do benefit and tax morale have on actual
behaviour (income)?
3. What Shapes the Attitudes to (Not) Paying Taxes or Receiving (Unjustified) Benefits? The Case of Austria – 3.1 Introduction: Three research questions
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 16 of 47
(i) Austrian data from the European Values Survey (1990 & 1999).
(ii) Respondents were asked to evaluate on a ten-point scale:
‘cheating on tax if you have the chance’ (…) ‘can always be justified, never be justified, or something in between.’ tax morale (1=none, 10=highest)
‘claiming state benefits which you are not entitled to’ (…) ‘can always be justified, never be justified, or something in between’. benefit morale (1=none, 10=highest)
(iii) N = 2,982 After cleaning data: N = 1,887 (N1990= 835,
N1999= 1,052).
3. What Shapes the Attitudes to (Not) Paying Taxes or Receiving (Unjustified) Benefits? The Case of Austria – 3.2 Data
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 17 of 47
(i) A system of two equations is applied:
Tax morale = α1 + β11 * benefit morale + β11 * income + Γ1 * Χ1 + ε1 (1)
Benefit morale = α2 + β21 * tax morale + β22 * income + Γ2 * Χ2 + ε2 (2)
(ii) If stated attitudes are translated in actual behavior, income is endogenous too, as simultaneity prevails.
(iii) Halla and Schneider (2005) instrument income with chief wage earners sex & job rank and the socio-economic status of the household.
3. What Shapes the Attitudes to (Not) Paying Taxes or Receiving (Unjustified) Benefits? The Case of Austria
– 3.3 Estimation of the determinants of tax & benefit morale
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 18 of 47
Table 3.1: 2SLS Estimation of Tax and Benefit Morale – Part 1
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
Variable Tax moralea) Benefit moralea)
Tax morale (index) - 0.463(0.220)**
Benefit morale (index) 0.607(0.282)**
-
Income (€ 100 p. m.) -0.024(0.013)*
0.002(0.013)
Age (years) -0.004(0.005)
0.011(0.003)***
Female (=1, dummy variable)
0.003(0.094)
0.122(0.077)
Married (=1, dummy variable)
0.182(0.105)*
-0.043(0.109)
School leaving age (years)
-0.022(0.013)*
0.001(0.013)
Employed (=1, dummy variable)
-0.083(0.130)
0.226(0.096)**
1999 (=1, dummy/shift variable)
0.141(0.180)
-0.480(0.090)***
Religious 0.136(0.053)***
-0.006(0.061)
α Standard errors are in parenthesis. *, ** and *** indicate a statistical significance at the 10-percent-level, 5-percent level and 1-percent level. Dummies for the nine Austrian provinces are included in each regression but not shown here. Base group is Vorarlberg.b P-value of Basmann‘s test of over-identifying restrictions of all instruments (Basmann, 1960).c P-value of Sargan‘s tests of overidentifying restrictions of all instruments (Sargan, 1958).Source: Martin Halla & Friedrich G. Schneider (2014).
Table 3.1: 2SLS Estimation of Tax and Benefit Morale – Part 2Variable Tax moralea) Benefit moralea)
Patriotic (1=not partriotic, 4=very patriotic)
0.157(0.101)
0.132(0.093)
Distrust legal system (1=no confidence, 5=complete confidence)
-0.137(0.054)**
-
Children - 0.073(0.032)**
Volunteer (=1, dummy variable)
- 0.136(0.083)*
Constant 3.410(2.151)
3.958(1.671)**
Observations 1,887 1,887Basmann Statisticb 0.237 0.584Sargan Statisticc 0.232 0.580
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(1) A negative significant coefficient of tax morale indicates
actual noncompliance behavior.
(2) A negative significant coefficient of benefit morale shows
actual claims of unjustified subsidies.
(3) In both cases a higher net wage is, ceteris paribus,
expected!
3. What Shapes the Attitudes to (Not) Paying Taxes or Receiving (Unjustified) Benefits? The Case of Austria
– 3.4 Estimation of impact on actual behavior
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
Income = α3 + β31*tax morale + β32*benefit morale + Γ3*Χ3 + ε3 (3)
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(4) Durbin-Wu-Hausman-Test for endogeneity of tax- &
benefit morale: P-value = 0.01
(5) Endogeneity prevails; we instrument for tax- and
benefit morale.
(6) Instruments are: Confidence in the legal system,
voluntary labor & children.
(7) Test(s) for over-identifying restrictions confirm the
instruments (e.g. P-value of Basmann‘s test = 0.62).
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
3. What Shapes the Attitudes to (Not) Paying Taxes or Receiving (Unjustified) Benefits? The Case of Austria
– 3.4 Estimation of impact on actual behavior
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Table 3.2: 2SLS Estimation on Income
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
Independent Variable Dependent Variable: Income
Tax morale 1.610(1.293)
Benefit morale -2.916**(1.309)
Chief wage earner‘s job rank
0.113(0.096)
Chief wage earner is female
-3.410***(0.475)
Socioeconomic status
4.382***(0.294)
1999 (=1, dummy variable)
-0.066(0.597)
Tirole -1.827***(0.728)
Constant 12.477(6.280)
α Standard errors are in parenthesis.*, ** and *** indicate a statistical significance at the 10-percent-level, 5-percent level and 1-percent level.Dummies for the nine Austrian provinces are included in each regression but, except for Tirole, they are not shown here as they are insignificant. Base group is Vorarlberg.b P-value of Basmann‘s test of over-identifying restrictions of all instruments (Basmann, 1960).c P-value of Sargan‘s tests of over-identifying restrictions of all instruments (Sargan, 1958). A different estimation strategy applying ordered probit estimations in both stages of the estimation of the tax- & benefit morale eqs. Deliver qualitatively very similar results.
Observations 1,887
Basmann Statisticb 0.622
Sargan Statisticc 0.620
Source: Martin Halla & Friedrich G. Schneider (2014).
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(1) No statistically significant impact of tax morale on household income!
(2) Statistically significant impact of benefit morale on household income! One point higher benefit morale reduces household income by 292 € p.m.
(3) Households with female chief wage earners have about 341 € lower income p.m.
(4) A higher socio-economic status (self reported, measured on four-point scale) is associated with 438 € more income p.m.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
3. What Shapes the Attitudes to (Not) Paying Taxes or Receiving (Unjustified) Benefits? The Case of Austria
– 3.5 Results of the 2SLS estimation on income
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The focus lies on institutional differences within countries
rather than between countries.
(1) Switzerland has direct democratic institutions and three
main ethnic groups: German, French and Italian
speaking individuals.
(2) Belgium has two main linguistic regions (Flanders and
Wallonia).
(3) Spain is used to control for regions with a strong identity
such as the Basque Country, Catalonia, Galicia, and
Navarre.
4. What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland
– 4.1 Introduction
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 25 of 47
4. What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland– 4.2 Empirical model & the dependent variable TMi (tax morale of individual i)
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
ii
iiiiiii
CULT
SOCINSTINSTRELECONDEMTSTM
7
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(1) Demographic independent variables (DEMi):
(i) AGE (four groups are built, 16-29 (reference group), 30-49, 50-64, 65+) (+);
(ii) GENDER (WOMAN, in the reference group man) (+); (iii) EDUCATION (+/-); (iv) MARITAL STATUS (+); (v) EMPLOYMENT STATUS (-); and(vi) RELIGIOSITY (RELi): CHURCH ATTENDANCE (+).
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(2) Economic and institutional independent variables:
(i) Properties of the tax system (TSi): individual tax rate,
audit probability and fine rate (the last two variables
only for Switzerland)) and economic variables ECONi
(income, financial satisfaction) → signs ambiguous!
(ii) The effects of the TAX RATE and the INCOME on tax
evasion are difficult to determine theoretically. They
depend on the individual’s risk preference and the
progression of the income tax schedule.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
4. What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland– 4.2 Empirical model & the dependent variable TMi (tax morale of individual i)
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(2) Economic and institutional independent variables:
(iii) A higher marginal tax rate makes tax evasion marginally more profitable, but a contrary effect works depending on the risk aversion of taxpayers. The results are influenced by the tax schedule and penalty structure → sign ambiguous!
(3) Political institution (INSTi) independent variables:
Direct democracy (+): The referendum is a strong restriction for the politicians or the legislature to act in their selfish interest; hence tax revenues are spent more in accordance with the preferences of the taxpayers, which increases tax morale, ceteris paribus.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
4. What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland– 4.2 Empirical model & the dependent variable TMi (tax morale of individual i)
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(4) Social/informal institutions and other socio-psychological independent variables (SOCINSTi): national pride (+)
and trust in public institutions (+).
(5) Culture/language differences (CULTi) independent
variables:
(i) If language acts as a restriction influencing an individual’s probability set, one can investigate whether it also influences individuals’ attitudes towards paying taxes (+);
(ii) Separatists tendencies such as observed in Spain may have a negative impact on the willingness to cooperate.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
4. What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland– 4.2 Empirical model & the dependent variable TMi (tax morale of individual i)
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(1) Individual data analysis, world and European value
surveys:
Belgium (EUS): 1999,
Spain (WUS): 1995, and
Switzerland (WVS): 1996
between 1000-1300 observations per country.
(2) Regression technique: Weighted ordered probit model to
analyse the ranking information of the scaled dependent
variable „Tax Morale“ TMi,j of individual i in country j.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
4. What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland
– 4.3 Empirical Results
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Table 4.1: Overview of the empirical results; dependent variable: tax morale
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
VariablesCountries
Switzerland Belgium Spain
INSTITUTIONS AND CULTURE
Formal Institutions (direct democracy) + n.a. n.a.
Culture/LanguageSocial/Informal Institutions
Strong interaction between culture and direct democracy (coeff. Latin cantons * direct democracy is negative and highly statistically significant)
Flemish individuals have a lower tax morale than Walloons (not statistically significant)
Lowest tax morale in Navarre; strong increase of tax morale in the Basque Country between 1990 and 1995.
National pride Tendency: + + Tendency: +Trust in state's institutions + + +
Pro democratic attitudes n.a. + +TAX SYSTEMDeterrence
Fine Rate: -; (+): Audit probability: (+)
n.a. n.a.
Tax rate + (+/-) (+/-)
Table 4.1: Overview of the empirical results; dependent variable: tax morale (cont.)
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIANotes: +: significant positive coefficient, (+), (-), positive, respectively negative coefficient sign without being significant, (±) positive and negative sign of the coefficient without being statistically significant. n.a. = not available.
VariablesCountries
Switzerland Belgium Spain
SOCIO-DEMOGRAPHIC AND SOCIO-ECONOMIC VARIABLES
Age
Tendency: + (robust and statistically significant for AGE 50-64, reference group: age < 30)
Tendency: + (robust and statistically significant for AGE 50-64)
(+/-)
Religiosity (Church att.) + + +Gender (women versus men) + + +
Education (+/-) (+/-) (-)
Marital status (married versus single) +
+ but not in all estimations statistically significant
(+)
Income/economic class Tendency: (-) (-) (+/-)Financial satisfaction + n.a. +Employment status (self-employed versus full-time employed)
(-) (-) (+/-)
I. Switzerland
(1) Higher direct democracy leads to higher tax morale.
(2) However one observes this effect only in the German speaking part of Switzerland, in the French and Italian the interaction variable (Dir.dem*Latin) is statistically significant with a negative sign!!
(3) Trust in gov. highly significant positive effect on tax morale.
(4) Deterrence factors no direct impact, coefficient of the fine rate negative and statistically significant → higher punishment crowds and tax morale.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
4. What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland
– 4.3 Empirical Results
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I. Switzerland (cont.)
(5) Women have higher tax morale than men.
(6) Old citizens (between 50 and 64) have a higher tax
morale than young.
(7) Married people have a higher one than singles.
(8) Religiosity has a significantly positive effect on tax
morale.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
4. What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland
– 4.3 Empirical Results
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II. Belgium
(1) No statistically significant difference among the cultural groups (Flemish and Francophone) with respect to tax morale.
(2) Pride and trust have a positive influence on tax morale.
(3) Aged, women, and married people have a high tax morale.
(4) Like in Switzerland church attendance leads to high tax morale.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
4. What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland
– 4.3 Empirical Results
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III. Spain
(1) Like in Belgium, no statistically significant influence of the different cultural regions, even not the Basque one, on tax morale.
(2) Opposite to Switzerland: higher autonomy does not lead to a higher tax morale in Navarre.
(3) Similar to Switzerland and Belgium, pride and trust lead to higher tax morale.
(4) Contrary to the findings in Switzerland and Belgium, church attendance and marriage has no effect on tax morale in Spain.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
4. What Shapes the Attitude to (Not) Paying Taxes? Evidence form the Multicultural European Countries Belgium, Spain and Switzerland
– 4.3 Empirical Results
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The basic idea is to analyze the effects of institutions on tax morale. Specifically, the impact of federalism on tax morale and on the size of the shadow economy was investigated.
Key hypothesis: The more extensive the local autonomy, the higher, ceteris paribus, tax morale and the lower the size of the shadow economy.
The model:
5. Local Autonomy, Tax Morale and the Shadow Economy – 5.1 Theoretical considerations / hypothesis
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
ii
iiiCCCi
TR
CTLYTDDDLATM
7
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The question for the dependent variable tax morale for the
year 1999:
“Do you fell it is wrong or not wrong if a taxpayer does not
report all of his or her income in order to pay less income
taxes?”
Possible answers:
1 = not wrong,
2 = a bit wrong,
3 = wrong,
4 = seriously wrong.
5. Local Autonomy, Tax Morale and the Shadow Economy– 5.1 Theoretical considerations / hypothesis
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 38 of 47
DDC: The degree of direct democracy – six-point scale index
(1 = lowest and 6 highest degree of democratic participation
at the cantonal level)
LAC: local autonomy – 10 point scale (1= no autonomy and
10= very high autonomy; index by Ladner (1994)
Ti: Individual tax rate
Yi: the individuals’ household income
Tri: measures, using the ISSP data set, the confidence in the
courts and the legal system
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
5. Local Autonomy, Tax Morale and the Shadow Economy– 5.2 Data information and key independent variables
39 of 47
Table 5.1: Tax morale and local autonomy
ISSP 1999 weighted ordered probit. Dependent variable: tax morale
Independent variables Coefficient Z-Stat. Marg.
(a) Institutions
Local Autonomy (LA) 0.144** 2.05 0.042
Degree of direct democracy (DD) 0.059** 2.02 0.017
(b) Individual Inc. Tax Rate (T) -0.005 -0.21 -0.001
(c) Demographic Factors (CTL)
Age 30-49 0.065 0.51 0.019
Age 50-64 0.063 0.40 0.018
Age 65+ 0.038 0.24 0.011
Woman 0.077 0.79 0.022
Education 0.034 1.49 0.010
(d) Marital Status (CTL)
Married/Living Together -0.066 -0.68 -0.019
Divorced -0.299 -1.52 -0.077
Separated 0.141 0.57 0.043
Widowed -0.092 -0.50 -0.026
(e) Economic Variables (Y)
Income 0.2e-04 0.38 0.4e-04
Table 5.1: Tax morale and local autonomy (cont.)
ISSP 1999 weighted ordered probit. Dependent variable: tax morale
Independent variables Coefficient Z-Stat. Marg.
(f) Employment Status (CTL)
Part Time Employed -0.155 -1.06 -0.043
Less Than Part Time 0.014 0.06 0.004
Unemployed 0.011 0.03 0.003
Student 0.395** 2.53 0.128
Retired 0.319** 2.20 0.100
At Home 0.146 0.82 0.044
Sick 0.196 1.27 0.061
(g) Religiosity
Church Attendance (CTL) 0.082*** 3.89 0.024
(h) Trust
Trust in Court and Legal System (TR)
0.096*** 3.27 0.028
Observations 1068
Prob > chi2 0.000
Pseudo R2 0.030
Notes: In the reference group are Ages 16–29, Man, Single, Full Time Employed. Marginal effect = highest tax morale score (4). Standard errors adjusted to clustering in 26 cantons*Significance level 0.05<p<0.10; **Significance level 0.01<p<0.05; ***Significance level p <0.01
(1) The results indicate that local autonomy and direct democracy are highly relevant to an understanding of why people cooperate with societies’ rules.
Institutions that respect the preferences of the citizens will have more support from the people than a state that acts as a Leviathan.
(2) High levels of local autonomy and direct democracy allow the expression of one’s own preferences and enhances identification with a state’s institutions.
This counteracts the tendency to be active in the shadow economy and increases the willingness to pay taxes.
(3) Results for the shadow economy: DD and LA are not statistically significant.
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
5. Local Autonomy, Tax Morale and the Shadow Economy– 5.3 Main Findings
42 of 47
(1) The goal was to investigate what shapes individuals’
attitudes towards paying taxes in the countries Austria,
Belgium, Switzerland and Spain.
(2) For Austria societal variables (age, gender, marital
status) have a strong impact on tax morale as well as
“perceived tax evasion” and “pride”. From an
institutional standpoint “trust in the legal system” has a
strong impact on tax morale, too.
6. Summary and Conclusions
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 43 of 47
(3) In Switzerland, a multicultural country, a strong
interaction between culture and institutions (here direct
democracy) and tax morale is observed.
(4) In Belgium, also a multicultural country, only small or
no differences in tax morale between Flemish
inhabitants and Walloons can be observed.
(5) In Spain, the lowest tax morale has been found in
Navarre and not in the Basque Country.
6. Summary and Conclusions
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 44 of 47
(6) Direct democracy has a strong positive impact on tax
morale in Switzerland. Also pro democratic attitudes in
Belgium and Spain have a positive effect on tax morale.
(7) National pride and trust (in the legal system, the
government and the parliament) have a consistent
positive effect on tax morale in all four countries!
(8) Trust at the constitutional (trust in the legal system) and
the current politico-economic process level (trust in the
government and the parliament) are essential to a well-
functioning taxpayer society.
6. Summary and Conclusions
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 45 of 47
(9) Finally to conclude:
There are first and promising results to explain what shapes tax morale. Hence the puzzle, why people pay taxes, is partly solved.
Moreover, these results demonstrate that there are several factors (e.g. trust in the legal system, direct democracy, federalism) despite deterrence that could help to improve citizens’ willingness to pay taxes.
To sum up: the investigation of tax morale in these European countries brought new insights of the importance of institutional, sociological and societal variables.
6. Summary and Conclusions
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 46 of 47
Thank you very much for your attention!
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA 47 of 47
Table A.1: Descriptive Statistics of the Austrian data 1990 and 1999
Appendix A1: Data
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
Variable Mean Std. Dev. Min Max
Tax morale* 8.92 1.86 1 10
Benefit morale*
9.09 1.66 1 10
Income (100 € p.m.)**
13.03 6.25 0 24.99
Spearman‘s Rho (tax morale, benefit morale) = 0.43
*Ten is the highest tax- & benefit morale.
** Income is given on a household basis (ten ranges). To account for inflation we assign the lower bound of each range.
Source: Martin Halla & Friedrich G. Schneider (2005).
48
Appendix A2: Further results of the European Value Survey
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
Austria Belgium Spain Switzerland0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
77.3
63.9
76.484.0
9.7 12.85.8 4.0
never always
in P
roze
nt
Source: European Value Survey, longitudinal data file; May 2015.
Figure A.1:“Do you justify cheating on taxes?”, Results of the EVS 2008/09 for Austria, Belgium, Spain and Switzerland in %
49
Figure A.2: “Do you justify claiming state benefits you are not entitled to?”, Results of the EVS 2008/09 for Austria, Belgium, Spain and Switzerland in %
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
Source: European Value Survey, longitudinal data file; May 2015.
Appendix A2: Further results of the European Value Survey
Austria Belgium Spain Switzerland0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
76.383.2
71.6
91.8
6.1 4.38.7
2.4
never always
in P
roze
nt
50
Appendix A2: Further results of the European Value Survey
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
1990
1999
2008
/09
1990
1999
2008
/09
1990
1999
2008
/09
2008
/09
Austria Germany Sweden Switzerland
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
85.9 84.277.3 76.7 78.7
85.177.5 77.4
81.3 84.0
3.5 4.99.7 8.1 6.7 2.9
8.3 5.9 6.5 4.0
never always
in P
roze
nt
Source: European Value Survey, longitudinal data file; May 2015.
Figure A.3:“Do you justify cheating on taxes?”, Results of the EVS from 1990-2008 for Austria, Germany, Sweden and Switzerland in %
51
Appendix A2: Further results of the European Value Survey
July 2015 Prof. Dr. Friedrich Schneider, University of Linz / AUSTRIA
1990
1999
2008
/09
1990
1999
2008
/09
1990
1999
2008
/09
2008
/09
Austria Germany Sweden Switzerland
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0 92.184.6
76.3
87.3 87.1 84.790.5
85.4 87.9 91.8
1.3 4.5 6.1 3.6 4.3 3.5 1.3 3.3 4.0 2.4
never always
in P
roze
nt
Source: European Value Survey, longitudinal data file; May 2015.
Figure A.4: “Do you justify claiming state benefits you are not entitled to?”, Results of the EVS from 1990-2008 for Austria, Germany, Sweden and Switzerland in %
52