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