Journal of Business Ethics

, Volume 116, Issue 3, pp 479–494 | Cite as

The Impact of Corruption on Firm Tax Compliance in Transition Economies: Whom Do You Trust?



Tax compliance is an important issue for governments and the public alike. To meet public needs and fund public mandates, firms around the world are expected to comply with tax laws. Factors that are related to organizational (firm) tax compliance have not been sufficiently examined in the literature. Owing to the increasing global influence of transition economies, factors associated with firm tax compliance in transition economies are particularly of interest. Based on a sample of over 5,000 firms from 22 former Soviet Bloc transition economies, we find that higher levels of corruption and higher levels of particularized trust (reliance on friends and family) are associated with lower levels of tax compliance. Interestingly, we also find that the negative relationship between corruption and tax compliance is weakened in situations of higher generalized trust (trust in strangers). Overall, our study’s results suggest that institutional factors play an important role and are related to firm tax compliance behavior in transition economies.


Corruption Generalized trust Particularized trust Tax compliance Transition economies  



We appreciate the helpful feedback from participants at the 2011 ABO Research Conference (Amber Whisenhunt, discussant), 2011 Academy of International Business Southeast Conference, 2012 AAA Public Interest Section Meeting (Eileen Taylor, discussant), the European Accounting Association 2012 Congress and the workshop participants at the University of Central Florida.


  1. Aguilera, R., & Vadera, A. (2008). The dark side of authority: Antecedents, mechanisms, and outcomes of organizational corruption. Journal of Business Ethics, 77(4), 431–449.Google Scholar
  2. Ahmad, N., & Brookins, O. (2007). The impact of corruption on efficiency in developing economies. International Journal of Economic Perspectives, 1(2), 64–73.Google Scholar
  3. Alon, A., & Dwyer, P. (2012). Globalization and multinational auditing: The case of Gazprom and PwC in Russia. Behavioral Research in Accounting, 24(1), 135–160.Google Scholar
  4. Ampratwum, E. F. (2008). The fight against corruption and its implications for development in developing and transition economies. Journal of Money Laundering Control, 11(1), 76–87.CrossRefGoogle Scholar
  5. Andreoni, J., Erard, B., & Feinstein, J. (1998). Tax compliance. Journal of Economic Literature, 36, 818–860.Google Scholar
  6. Ashforth, B. E., & Anand, V. (2003). The normalization of corruption in organizations. Research in Organizational Behavior, 25, 1–52.CrossRefGoogle Scholar
  7. Ashforth, B. E., Gioia, D. A, Robinson, S. L., & Trevino, L. K. (2008). Re-viewing organizational corruption. The Academy of Management Review, 33(3), 670-684.Google Scholar
  8. Barley, S. R., & Tolbert, P. S. (1997). Institutionalization and structuration: Studying the links between action and institution. Organization Studies, 18(1), 93–117.CrossRefGoogle Scholar
  9. Bayer, R., & Cowell, F. (2009). Tax compliance and firms’ strategic interdependence. Journal of Public Economics, 93, 1131–1143.CrossRefGoogle Scholar
  10. Bobek, D. B., Roberts, R. W., & Sweeney, J. T. (2007). The social norms of tax compliance: Evidence from Australia, Singapore, and the United States. Journal of Business Ethics, 74, 49–64.CrossRefGoogle Scholar
  11. Braguinsky, S. (1996). Corruption and Schumpeterian growth in different economic environments. Contemporary Economic Policy, 14(3), 14–25.CrossRefGoogle Scholar
  12. Campos, J. E., Lien, D., & Pradhan, S. (1999). The impact of corruption on investment: Predictability matters. World Development, 27(6), 1059–1067.CrossRefGoogle Scholar
  13. Chen, K., & Chu, C. (2005). Internal control versus external manipulation: A model of corporate income tax evasion. RAND Journal of Economics, 36, 151–164.Google Scholar
  14. Collins, J., Uhlenbruck, K., & Rodriguez, P. (2009). Why firms engage in corruption: A top management perspective. Journal of Business Ethics, 87(1), 89–108.CrossRefGoogle Scholar
  15. Crocker, K. J., & Slemrod, J. (2005). Corporate tax evasion with agency costs. Journal of Public Economics, 89, 1593–1610.CrossRefGoogle Scholar
  16. de la Croix, D., & Delavallade, C. (2009). Growth, public investment and corruption with failing institutions. Economics of Governance, 10(3), 187–219.CrossRefGoogle Scholar
  17. DiMaggio, P. J., & Powell, W. W. (1991). Introduction. In W. W. Powell & P. J. DiMaggio (Eds.), The new institutionalism in organizational analysis (pp. 1–40). Chicago, IL: University of Chicago Press.Google Scholar
  18. Dincer, O., & Uslaner, E. (2010). Trust and growth. Public Choice, 142(1–2), 59–67.CrossRefGoogle Scholar
  19. Doh, J., Rodriguez, P., Uhlenbruck, K., Collins, J., & Eden, L. (2003). Coping with corruption in foreign markets. Academy of Management Executive, 17(3), 114–127.CrossRefGoogle Scholar
  20. Donaldson, S. I., & Grant-Vallone, E. J. (2002). Understanding self-report bias in organizational behavior research. Journal of Business and Psychology, 17(2), 245–260.CrossRefGoogle Scholar
  21. Echambadi, R., & Hess, H. D. (2007). Mean-centering does not alleviate collinearity problems in moderated multiple regression models. Marketing Science, 26(3), 438–445.CrossRefGoogle Scholar
  22. Gelbuda, M., Meyer, K. E., & Delios, A. (2008). International business and institutional development in central and eastern Europe. Journal of International Management, 14, 1–11.CrossRefGoogle Scholar
  23. Gerxhani, K. (2004). Tax evasion in transition: Outcome of an institutional clash? Testing Feige’s conjecture in Albania. European Economic Review, 48, 729–745.CrossRefGoogle Scholar
  24. Granovetter, M. (1985). Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91, 481–510.Google Scholar
  25. Griffin, R. W. (1991). Effects of work redesign on employee perceptions, attitudes, and behaviors: A long-term investigation. Academy of Management Journal, 34(2), 425–435.CrossRefGoogle Scholar
  26. Habib, M., & Zurawicki, L. (2002). Corruption and foreign direct investment. Journal of International Business Studies, 33(2), 291–307.CrossRefGoogle Scholar
  27. Hall, R. E., & Jones, C. I. (1999). Why do some countries produce so much more output per worker than others? The Quarterly Journal of Economics, 114(1), 83–116.CrossRefGoogle Scholar
  28. Hosmer, L. (1995). Trust: The connecting link between organizational theory and philosophical ethics. The Academy of Management Review, 20(2), 379–403.Google Scholar
  29. Humphrey, J., & Schmitz, H. (1998). Trust and inter-firm relations in developing and transition economies. Journal of Development Studies, 34(4), 32–61.CrossRefGoogle Scholar
  30. Jain, A. (2001). Corruption: A review. Journal of Economic Surveys, 15(1), 71–121.CrossRefGoogle Scholar
  31. Joulfaian, D. (2009). Bribes and business tax evasion. The European Journal of Comparative Economics, 6(2), 227–244.Google Scholar
  32. Kaufmann, D. (1997). Corruption: The facts. Foreign Policy, 107, 114–131.CrossRefGoogle Scholar
  33. Kaufmann, D. (2009) Governance matters 2009: Learning from over a decade of the worldwide governance indicators. Retrieved from
  34. Kavka, G. S. (1983). When two ‘wrongs’ make a right: An essay on business ethics. Journal of Business Ethics, 2(1), 61–66.CrossRefGoogle Scholar
  35. Knack, S., & Keefer, P. (1997). Does social capital have an economic payoff? A cross-country investigation. The Quarterly Journal of Economics, 112(4), 1251–1288.CrossRefGoogle Scholar
  36. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1997) Trust in large organizations. The American Economic Review Papers and Proceedings, 87(2), 333–338.Google Scholar
  37. Lapalombara, J. (1994). Structural and institutional aspects of corruption. Social Research, 61(2), 325–350.Google Scholar
  38. Ledeneva, A. V. (1998). Russia’s economy of favours: Blat, networking and informal exchanges. Cambridge: Cambridge University Press.Google Scholar
  39. Leff, N. (1964). Economic development through bureaucratic corruption. The American Behavioral Scientist, 8(3), 8–14.CrossRefGoogle Scholar
  40. Lewis, J. D., & Weigert, A. (1985). Trust as social reality. Social Forces, 63, 967–985.Google Scholar
  41. Li, S. (2009). Managing international business in relation-based versus rule-based countries. New York: Business Expert Press.CrossRefGoogle Scholar
  42. Li, J., Moy, J., Lam, K., & Chu, W. L. C. (2008). Institutional pillars and corruption at the societal level. Journal of Business Ethics, 83(2), 327–339.CrossRefGoogle Scholar
  43. Li, S., & Ouyang, M. (2007). A dynamic model to explain the bribery behavior of firms. International Journal of Management, 24(3), 605–618.Google Scholar
  44. Li, S., & Wu, J. J. (2007). Why China thrives despite corruption. Far Eastern Economic Review, 170(3), 24–28.Google Scholar
  45. Li, S., & Wu, J. J. (2010). Why some countries thrive despite corruption: The role of trust in the corruption-efficiency relationship. Review of International Political Economy, 17(1), 129–154.CrossRefGoogle Scholar
  46. Martinez-Vazquez, J., & McNab, R. M. (2000). The tax reform experiment in transitional countries. National Tax Journal, 53(2), 273–298.Google Scholar
  47. Mauro, P. (1995). Corruption and growth. The Quarterly Journal of Economics, 110(3), 681–712.CrossRefGoogle Scholar
  48. Melé, D. (2009) Business ethics in action. Seeking human excellence in organizations. New York: Palgrave-MacMillan.Google Scholar
  49. Michailova, S., & Worm, V. (2003). Personal networking in Russia and China: Blat and guanxi. European Management Journal, 21(4), 509–519.Google Scholar
  50. Minnick, K., & Noga, T. (2010). Do corporate governance characteristics influence tax management? Journal of Corporate Finance, 16(5), 703–718.CrossRefGoogle Scholar
  51. Murphy, K. (2004). The role of trust in nurturing compliance: A study of accused tax avoiders. Law and Human Behavior, 28(2), 187–209.CrossRefGoogle Scholar
  52. Nelson, J. M., Tilly, C., & Walker, L. (1997). Transforming post-communist political economies. Washington, DC: National Academy Press.Google Scholar
  53. Nielsen, R. P. (2003). Corruption networks and implications for ethical corruption reform. Journal of Business Ethics, 42(2), 125–149.CrossRefGoogle Scholar
  54. Nielsen, R. P., & Ballas, A. (2000). The politics of resisting and reforming systematic extortion by tax auditors-inspectors. Business Ethics: A European Review, 9(2), 76–86Google Scholar
  55. North, D. (1990). Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  56. Oliver, C. (1991). Strategic responses to institutional processes. Academy of Management Review, 16(1), 145–179.Google Scholar
  57. Peng, M. W., & Heath, P. (1996). The growth of the firm in planned economies in transition: Institutions, organizations, and strategic choice. Academy of Management Review, 21, 492–528.Google Scholar
  58. Podsakoff, P. M., MacKenzie, S. B., Lee, J., & Podsakoff, N. P. (2003). Common method biases in behavioral research: A critical review of the literature and recommended remedies. Journal of Applied Psychology, 88(5), 879–903.CrossRefGoogle Scholar
  59. Posner, E. A. (2000). Law and social norms: The case of tax compliance. Virginia Law Review, 86(8), 1781–1819.CrossRefGoogle Scholar
  60. Raiser, M. (1999). Trust in transition. EBRD Working Paper, No. 39, London.Google Scholar
  61. Robertson, C. J., Crittenden, W. F., Brady, M. K., & Hoffman, J. J. (2002). Situational ethics across borders: A multicultural examination. Journal of Business Ethics, 38(4), 327–338.CrossRefGoogle Scholar
  62. Robertson, C. J., & Watson, A. (2004). Corruption and change: The impact of foreign direct investment. Strategic Management Journal, 25(4), 385–396.CrossRefGoogle Scholar
  63. Rothstein, B., & Uslaner, E. (2005). All for all: Equality, corruption, and social trust. World Politics, 58(1), 41–72.CrossRefGoogle Scholar
  64. Sajo, A. (2003). From corruption to extortion: Conceptualization of post-communist corruption. Crime, Law & Social Change, 40, 171–194.CrossRefGoogle Scholar
  65. Scholz, J. T., & Lubell, M. (1998). Trust and taxpaying: Testing the heuristic approach to collective action. American Journal of Political Science, 42(2), 398–417.CrossRefGoogle Scholar
  66. Scott, W. R. (1987). The adolescence of institutional theory. Administrative Science Quarterly, 32(4), 493–512.CrossRefGoogle Scholar
  67. Scott, W. R. (2001). Institutions and organizations (2nd ed.). Thousand Oaks, CA: Sage.Google Scholar
  68. Shleifer, A., & Vishny, R. (1993). Corruption. The Quarterly Journal of Economics, 108(3), 599–617.CrossRefGoogle Scholar
  69. Spector, P. E. (1994). Using self-report questionnaires in OB research: A comment on the use of a controversial method. Journal of Organizational Behavior, 15(5), 385–392.CrossRefGoogle Scholar
  70. Teorell, J. (2007). Corruption as an institution: Rethinking the nature and origins of the grabbing hand. Gothenburg: The Quality of Government Institute, University of Gothenburg.
  71. Torgler, B. (2003a). Tax morale, rule-governed behavior and trust. Constitutional Political Economy, 14(2), 119–140.CrossRefGoogle Scholar
  72. Torgler, B. (2003b). Tax morale in transition countries. Post-Communist Economies, 15(3), 357–381.CrossRefGoogle Scholar
  73. Torgler, B. (2005). Tax morale in Latin America. Public Choice, 122, 133–157.CrossRefGoogle Scholar
  74. Torgler, B. (2008). What do we know about tax fraud? Social Research, 75(4), 1239–1270.Google Scholar
  75. Transparency International. (2009). Global Corruption Report. Cambridge: Cambridge University Press.Google Scholar
  76. Uslaner, E. (1999). Trust but verify: Social capital and moral behavior. Social Science Information, 38, 29–56.Google Scholar
  77. Uslaner, E. (2002). The moral foundations of trust. New York: Cambridge University Press.Google Scholar
  78. Uslaner, E. (2010). Tax evasion, corruption, and the social contract in transition. In J. Alm, J. Martinez-Vazquez, & B. Torgler (Eds.), Developing alternative frameworks for explaining tax compliance (pp. 206–225). London: Routledge.Google Scholar
  79. Uslaner, M., & Badescu, G. (2005). Making the grade in transition: Equality, transparency, trust, and fairness. College Park: University of Maryland.Google Scholar
  80. Uslaner, E. M., & Conley, R. S. (2003). Civic engagement and particularized trust: The ties that bind people to their ethnic communities. American Politics Research, 31(4), 331–360.CrossRefGoogle Scholar
  81. Van Ees, H., & Bachmann, R. (2006). Transition economies and trust building: a network perspective on EU enlargement. Cambridge Journal of Economics, 30, 923–939.CrossRefGoogle Scholar
  82. Venard, B. (2009). Organizational isomorphism and corruption: An empirical research in Russia. Journal of Business Ethics, 89(1), 59–76.CrossRefGoogle Scholar
  83. Xu, D., & Shenkar, O. (2002). Institutional distance and the multinational enterprise. Academy of Management Review, 27(4), 608–618.Google Scholar
  84. Zak, P. J., & Knack, S. (2001). Trust and growth. The Economic Journal, 111(470), 295–321.CrossRefGoogle Scholar
  85. Zucker, L. G. (1986). Production of trust: Institutional sources of economic structure, 1840–1920. In B. M. Staw & L. L. Cummings (Eds.), Research in organizational behavior (pp. 53–111). Greenwich, CT: JAI Press.Google Scholar

Copyright information

© Springer Science+Business Media B.V. 2012

Authors and Affiliations

  1. 1.Rollins CollegeWinter ParkUSA
  2. 2.Department of AccountingKansas State UniversityManhattanUSA

Personalised recommendations