Work

National culture and tax evasion: The role of the institutional environment quality

Year: 2023

Type: article

Abstract: This study examines the role of institutional environment quality (IEQ) in the relationship between national culture (NC) and tax evasion (TE). Prior research examined the direct impact of culture on tax evasion but did not examine potential mechanisms that may influence this relationship. Using structural equation modeling and examining data for the European Union (EU) countries over the 2004-2018 period, we find that countries that exhibit high levels of power distance, uncertainty avoidance, collectivism, and restraint are associated with higher levels of tax evasion. The results indicate that IEQ has a mediating effect on the NC–TE nexus, suggesting that policymakers should aim at improving the quality of national institutions to diminish the undesirable influence of culture on tax evasion levels. More specifically, we find that the rule of law, regulatory quality and government effectiveness are the IEQ indicators that fully mediate the NC-TE relationship. Moreover, splitting the sample into old and new EU countries shows a partial mediation effect in old EU countries and a full mediation effect in new EU countries. Enhancing IEQ can play a more prominent role in new EU countries to reduce the detrimental impact of cultural values on tax evasion.

Source: Journal of International Accounting Auditing and Taxation

DOI: 10.1016/j.intaccaudtax.2023.100559

Authors: Amir Allam, Tantawy Moussa, Mona Abdelhady, Ahmed Yamen

Institutions: University of Westminster, Cairo University, American University of the Middle East

Language: English

Topic: Taxation and Compliance Studies

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,010