taxmorale_rolling stones

What Drives Tax Morale?Like a Rolling Stone

Angel MelguizoHead of the Latin American and Caribbean UnitOECD Development Centre

5th Plenary MeetingOECD Task Force on Tax and DevelopmentParis, 2-3 November 2015

2

Paint it Black?

40%

45%

50%

55%

60%

65%

70%

75%

1998 2003 2005 2008 2009 2010 2011 2013 2015

Latin America: Tax evasion is never justified

Source: Latinobarometro

3

You can’t always get what you wantTaxes are not just an issue of different levels of economic development

0

10

20

30

40

50

60

3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8

Tax

reve

nues

as s

hare

of G

DP (2

005,

per

cent

age)

GDP per capita in PPP (logs, 2005)

Source: OECD (2013), What drives tax morale?. OECD Tax and Development

4

Between a rock and a hard place

What factors explain the differences across countries?

• Law and enforcement: low-taxation rules and/or weak tax enforcement and administration

• Socio-demography (sometimes linked to fairness and transparency)

• Fiscal illegitimacy: • State/government perceived as weak in delivering essential services• Public revenue are diverted or used to benefit a few

Vicious cycle: underfunded governments cannot deliver

It is key to identify, measure and estimate the impact of these issues to design effective policies

5

Start me up: Micro-econometric evidence (OECD, 2013)

What factors explain tax morale differences across countries?

Do you justify cheating on taxes if you have the chance? 1 (always) – 10 (never), World Value Survey, circa 2005

55 countries (out of 90); around 52,000 observationsWestern and

Central EuropeEastern Europe

Asia AfricaNorth America

and OceaniaLatin America and Caribbean

Andorra Bulgaria China Burkina Faso Australia Argentina Cyprus Moldova Georgia Egypt Canada Brazil Finland Poland Hong Kong, China Ethiopia New Zealand Chile France Romania India Ghana United States Colombia Germany Russia Indonesia Mali Guatemala Italy Serbia Iran Morocco Mexico Netherlands Slovenia Japan Rwanda Trin. and Tobago Norway Ukraine Jordan South Africa Uruguay Spain Korea, Rep. Zambia Sweden MalaysiaSwitzerland Chinese TaipeiUnited Kingdom Thailand

Turkey Vietnam

6

0%

20%

40%

60%

80%

100%

Westernand Central

Europe

EasternEurope

Asia Africa LatinAmerica and

Caribbean

Anglosaxon

% o

f res

pond

endt

s nev

er ju

stify

ing

chea

ting

on ta

xes

Avg Max Min

Tax morale at a glance (% justifying cheating on taxes)

Start me up: Tax morale varies a lot across regions (OECD, 2013)


7

y = 0.387x + 7.761R² = 0.045

5

6

7

8

9

10

1.5 2 2.5 3 3.5 4

Tax

Mor

ale

Trust in Government

Panel A

r = 0.2120p-value: 0.1202

y = 0.211x + 7.986R² = 0.004

5

6

7

8

9

10

2.5 3 3.5 4 4.5Ta

x M

oral

e

Having a democractic political system

Panel B

r = 0.0642p-value: 0.6415

Correlation between tax morale, trust and democracy

Start me up: Trust and political values matter (OECD, 2013)


8

• Marital status (married/living together; divorced/separated; widow/single)• Religious (1 = respondent considers herself religious)• Female (1 = female)

• Educational attainment (1 = no formal education … 9 = university degree)• Employment status (full-time; part-time; self-employed; retired; housewife; student;

unemployed; other)• Income quintile (self-perceived relative position)• Economic problems (1 = cannot save or had to borrow to satisfy needs)

• Support for democracy (having a democratic system is very bad =1 … very good =4)• Trust in government: confidence in national government (1 none at all – 4 a great deal)• Redistribution: tax the rich and subside the poor (1 not essential – 10 essential) • Meritocracy: hard work usually brings a better life (1 = yes; 10 =it is a matter of luck and

connections).

Start me up: Testing socio-economics and politics (OECD, 2013)

9

Start me up: Perceptions and socioeconomics (OECD, 2013)

Marginal effects on the probability of reporting high tax morale (Never justifying tax evasion)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Support for Democracy

Age Trust in Government

Female Religious Educational Attainment

Source: OECD (2013), What drives tax morale?. OECD Tax and Development.

10

Start me up: Trust and politics impact differently (OECD, 2013)

Marginal effects on the probability of reporting high tax morale (Differences with respect to Anglo-Saxon countries)

-12.0%

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

Supp

ort f

or D

emoc

racy

Trus

t in

Gove

rnm

ent

Supp

ort f

or D

emoc

racy

Trus

t in

Gove

rnm

ent

Supp

ort f

or D

emoc

racy

Trus

t in

Gove

rnm

ent

Supp

ort f

or D

emoc

racy

Trus

t in

Gove

rnm

ent

Supp

ort f

or D

emoc

racy

Trus

t in

Gove

rnm

ent

Western Europe Eastern Europe Asia Africa Latin America


11

It’s only (R&R) correlations, but I like it: Summing up OECD, 2013

• Socio-demographics: religiousness, gender, relative income, age composition of the population (might relate to type of social insurance and programs; or stigma of evading taxes)

• Economic conditions: lower tax morale among unemployed or people struggling to get by

• Education double dividends: e.g. Educational upgrading seems to lead towards greater tax morale (public service link?)

• ‘Politics’: Perceptions on the functioning of democracy, transparency and fairness are important

• Regional differences (unexplained)


12

Africa(Afrobarometer)

Asia(AsiaBarometer)

Latin America and Caribbean(Latinobarómetro)

World Values Survey

Tax Morale

'Do you think i s not wrong at a l l , wrong but understandable, or wrong and punis hable to not paying taxes owed on income'

'Would you l ike to see more or less government s pending in each area (for several areas of government spending )? Please bear in mind that more spending may require a tax increase'

-Tax evas ion is never justifi ed - Do you think good citi zens s hould pay taxes ?

- Do you justify cheating on taxes i f you have a chance? - Do you justify cla iming benefi ts you're not enti tled to?

Satisfaction with public services

'How would you s ay the government i s handl ing: improving heal thcare (among different aspects of government action, each asked separately )'

- 'How wel l you think your country's government is deal ing wi th the fol lowing i ss ues ?'Qual i ty of publ ic services (for several areas, each asked separately ). - 'How s atisfi ed are you with these as pects in your l i fe?' health/education/social welfare system/security (for several areas, each asked separately ).

'Are you sati sfi ed in the way (publ ic education, publ ic heal thcare, among others ) works?'

N/A

Tax accountability

'Parl iament should ensure that the Pres ident expla ins to i t on a regular bas is how his government spends the taxpayers ’ money'

N/A N/A N/A

Perception of Corruption 'How many people do you think are involved in corruption' (for different authorities, each asked separetly )

'How much you agree with the s tatement "there i s wide s pread corruption among thos e who govern the country"?'

'Which do you cons ider i s the main problem in your country?' Out of several possibilities, ' corruption' is an answer .

N/A

Support for/satisfaction with democracy

- With which s tatement do you agree: democracy i s preferable to any other kind of government (other answers possible )- How sati sfi ed are you with the way democracy works in your country?

'How s atis fi ed are you with these aspects in your l i fe?'The democracti c system (for several areas, each asked separately ).

- With which s tatement do you agree: democracy i s preferable to any other form of government (other answers possible )- How satis fi ed are you with the way democracy works in your country?

'How good would you s ay i s having a democractic pol itical s ystem for governing your country?'

Trust in government

'How much do you trus t each of the fol lowing: Pres ident/ National Ass embly?' (for different authorities, each asked separately )

'To what extent do you trus t the <Centra l Government> to operate in the best interestes of s ociety?' (for different institutions, each asked separately )

'How much trust do you have in the fol lowing ins titutions ?' (for different institutions, each asked separately )

'How much confi dence do you have in the government (in your nation's capi ta l )?'

Dirty work: Comparing databases (OECD, 2013)

13

Regional patterns I: An example based on Afrobarometer

Tax morale is higher where corruption is under control

BEN

BWA

BFA

CPV

GHA

KEN

LSO LBR

MDGMWI

MLIMOZ

NAMNGASENZAFTZA UGA

ZMB

ZWE

y = -0.9342x + 3.761R² = 0.0319

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

0.0% 10.0% 20.0% 30.0% 40.0%

Tax

Depa

rtm

ent h

as ri

ght t

o m

ake

peop

le p

ay

All government officials are corrupt (% of respondents)

Panel A

r = (0.1786)p-value: 0.4512

BEN

BWA

BFA

CPV

GHA

KEN

LSO LBR

MDGMWI

MLIMOZNAM

NGASENZAFTZA UGAZMB

ZWE

y = -1.2809x + 3.8359R² = 0.2084

2.52.72.93.13.33.53.73.94.14.34.5

0.0% 10.0% 20.0% 30.0% 40.0%Tax

Depa

rtm

ent h

as ri

ght t

o m

ake

peop

le p

ayAll tax officials are corrupt (% of respondents)

Panel B

r = (0.4565)p-value: 0.0430


14

(I can’t get no) Satisfaction in Africa

Countries show higher tax morale when healthcare services are appreciated

BEN

BWA

BFA

CPV

GHA

KEN

LSOLBR

MDGMWI

MLIMOZNAM

NGASEN ZAFTZAUGA

ZMB

ZWE

y = 0.3833x + 2.661R² = 0.2229

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

1.5 2.0 2.5 3.0 3.5

Tax

Depa

rtm

ent h

as ri

ght t

o m

ake

peop

le p

ay

Satisfaction with improving healthcare

r = 0.4721p-value: 0.0356


15

Regional patterns II: An example based on AsiaBarometer

Trust in government strengthens the social contract

CHN

HKGJPN

KOR

SGP

TWN

MYS

IDN

PHL

THA

INDPAK

AFGLKA

KHMBGD

MDV

BTNMNG

NPL

TJK TKMKGZ

UZBKAZ

y = 0.222x + 3.203R² = 0.232

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

1 1.5 2 2.5 3 3.5 4

Will

ing

to p

ay t

o se

e m

ore

publ

ic sp

endi

ng

Trust in Central Government


16

Satisfaction with social services is associated with higher tax morale

CHN

HKGJPN

KOR

SGP

TWN

VNMMYS

IDN

PHLTHA

INDPAK

AFGLKA

KHM

LAO

BGDMDV

BTNMNG

NPL

TJKTKM KGZ

UZBKAZ

y = 0.4742x + 2.2088R² = 0.1385

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

3 3.2 3.4 3.6 3.8 4

Will

ing

to p

ay to

see

mor

e pu

blic

spen

ding

Satisfaction with social services

Panel B

r = 0.3722p-value: 0.0556

(I can’t get no) Satisfaction in Asia


17

Regional patterns III: An example based on Latinobarómetro

Satisfaction with democracy boosts tax morale

ARG

BOL

BRA CHLCOL

CRIDOM

ECU

SLV

GTM

HND

MEX

NIC

PAN

PRYPER

URY

VEN

y = 0.339x + 7.616R² = 0.032

6.5

7.0

7.5

8.0

8.5

9.0

9.5

1.8 2.3 2.8

Tax

Mor

ale

Satisfaction with democracy

r = 0.1787p-value: 0.4780


18

Satisfaction with education is associated with higher tax morale

ARG

BOL

BRACHLCOL

CRI DOM

ECU

SLV

GTM

HND

MEX

NIC

PAN

PRYPER

URY

VEN

y = 0.914x + 6.23R² = 0.323

6.5

7.0

7.5

8.0

8.5

9.0

9.5

1.0 1.5 2.0 2.5 3.0 3.5

Tax

Mor

ale

Satisfaction with public education

(I can’t get no) Satisfaction in Latin America


19

Shine a light: Tax and Development 3.0?

• Our exercise confirms the potential impact of tax morale in the domestic resource mobilisation agenda

• Measuring and evaluation of tax morale is limited by data availability: country coverage, sample size, comparability across regions, questions

• International benchmarking and in-depth country are needed

20

Time is NOT on our side

Source: FT

Neves 48%

Rouseff 52%

Gracias

http://www.rollingstone.com/music/lists/100-greatest-rolling-stones-songs-20131015/little-t-a-1981-19691231

5th Plenary MeetingOECD Task Force on Tax and DevelopmentParis, 2-3 November 2015

Angel MelguizoHead of the Latin American and Caribbean UnitOECD Development Centre




taxmorale_rolling stones

Economy & Finance