Como afecta la desigualdad la moral fiscal en Latinoamerica y el Caribe.

AuthorGerstenblüth, Mariana
PositionArtículo en inglés
Pages123(13)

How do inequality affect tax morale in Latin America and Caribbean?

1 Introduction

Values, tastes, expectations and consequently individual's decisions are influenced by the context. Therefore, comparative research could not ignore context effects; in particular when analyzing individual behaviors with respect to the law (Bergman and Nevarez, 2005). This paper analyzes some elements that shape tax morale as a proxy of individual's ethic behavior. It is expected that some individual characteristics play a relevant role. However, our main contribution is based on analyzing how inequality and the perceived quality of institutions affect the probability of behaving in accordance with the law regarding evading or not taxes.

Tax morale is defined as the individuals' intrinsic motivation to pay taxes, which is treated as a "black box" by many studies of the subject, considering it as a residual in the analysis of tax evasion (Feld and Frey, 2002).

Given this definition, we found, as previous literature, that some socio-demographic characteristics play a relevant role, as well as related with trust, democracy and national pride (Azar and Rossi, 2008). However, our main contribution to the literature is the finding of the influence of context. In particular, we found that corruption perception, Gross Domestic Product per capita and inequality do shape people decisions towards paying taxes. Therefore, we can conclude that institutions, equity and the way that democracy works make the difference.

2 Background

Analyzing the decision of whether or not to evade income taxation, Allingham and Sandmo (1972) found that evasion will depend on the expected savings resulting from the evasion, the probability of being caught and the magnitude of the monetary sanction in case of being caught. Some other studies extend this analysis including other characteristics such as cooperation among taxpayers to evade (Boadway et al., 2002), the corruption in the public administration (Polinsky and Shavell, 2001) or variables related to the compliance with formal and informal rules and the way in which the tax authority recognizes taxpayers' rights and characteristics (Feld and Frey, 2002).

Nevertheless, these works predict levels of compliance that are lower than those actually observed, so the intrinsic motivation to pay taxes is gaining more importance in the literature than the levels of compliance (Alm and Torgler, 2004; Martinez-Vazquez and Torgler, 2005; Schneider and Torgler, 2004; Torgler, 2001, 2005).

Alm and Torgler (2004), using data from the World Values Survey (1990 and 1995) for United States and 15 European countries, show the importance of social and cultural variables. The highest level of tax morale was found in the United States (above Austria and Switzerland). They also found that some socio-demographics characteristics matter and the same is true in the case of context (trust in the legal system and parliament and level of financial satisfaction). At the same time, they find a strong negative correlation between tax morale and the size of the formal sector. In the same line, Schneider and Torgler (2004) analyzing the cases of Belgium, Spain and Switzerland found that intra-national cultural differences have a significant impact on the level of tax morale.

Focusing on fiscal policies implications of tax morale, Schaltegger and Torgler (2005), found that taxpayers' attitudes are significantly influenced, among other factors, by the government's decisions in the field of tax policies and by the authorities' behavior. The effects of tax systems, public expenditure, effectiveness of tax administration and the total amount of taxes, are aspects that play a relevant role.

One of the first studies in the subject in Latin America was made by Torgler (2005) using the Latino barómetro 1998 and the World Values Survey 1981-1997. He finds that tax morale levels are higher in Central America and the Caribbean.

In light of the existing literature, the objective of this paper is to analyze whether an environment with high levels of corruption and / or inequality leads to a decline in the tax morale.

3 Data and methodology

The data source is the Latino barómetro 2005. This survey is a public opinion study that is carried out annually in 18 Latin American countries, with more than 19,000 personal interviews that represent about 400 million people. The unit of analysis is individuals responding the the survey.

The dependent variable, that is the intrinsic motivation to pay taxes (tax morale, tm), is captured with the question: "Within a 1 to 10 scale, where 1 means "not at all justifiable" and 10 means "totally justifiable", how much justifiable do you think tax evading is?" For ease of reading we inverted the order in such a way that 1 corresponds to the lower level of tax morale and 10 to the highest and with the aim of taking into account the highest levels of tax morale we construct the binary variable tm in the following way: tm equals 1 if respondent indicates 9 or 10 and 0 in other case. (1) Table 1 shows the distribution of answers to this...

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