Public governance quality and tax compliance behavior in developing countries

Abstract

Purpose The purpose of this paper is to explore the relationship between public governance quality and tax compliance behavior in developing countries in terms of what transpires between governments and citizens, leading the later to pay or to abstain from paying tax. The study argues that socioeconomic condition is a mediator in the relationship and explains how and why it is so. Design/methodology/approach This study adopts the conceptual approach and connects the concepts through synthesis of literature and previous research findings. Findings The study concludes that socioeconomic condition mediates the relationship between public governance quality and tax compliance behavior in developing countries. Socioeconomic conditions appear to be a broader, clearer and more practical concept for measurement purpose than public goods/spending as currently understood in the literature. Research limitations/implications The study is a conceptual effort, and there may a be need to undertake further empirical investigations. Developing countries vary in their socioeconomic conditions, and there is a need to acknowledge country-specific circumstances. Practical implications The implication of the finding includes the need for further research on the concept of socioeconomic condition, and how and why it influences tax compliance behavior in developing countries. Stakeholders and governments should monitor the impact of policies and actions on the socioeconomic condition of citizens to ensure they are satisfied. Their dissatisfaction leads to the boycott of the tax system which adversely affects economic development. Originality/value This study makes an original contribution by exploring socioeconomic conditions as a mediator between public governance quality and tax compliance behavior in developing countries. It is a significant contribution that is capable of shifting the direction of tax compliance research in developing countries due to its practical realities.

Stay at Home! Governance Quality and Effectiveness of Lockdown

“…In a study of Nigeria, Alabede and Zainal Affrin ( 2011 ) discovered that public governance quality shows a significant positive relationship with tax compliance. However, a recent study also suggested that, in the case of developing countries especially, the relationship between governance quality and tax compliance is mediated by socioeconomic conditions (Umar et al, 2019 ).…”

Provision of Public Goods and Services by The Government and Property Tax Compliance

“…The link between tax compliance and the provision of public goods can be explained by Tax Moral Mechanism, which states that what affects public tax compliance is reciprocity between the government as a tax collector and the public as a taxpayer (Luttmer & Singhal, 2014). This is also supported by The Fiscal Social Contract Theory which states that taxpayers are bound by contracts to finance the government, while the government is also bound by contracts to guarantee the welfare of the community as taxpayers (Umar, 2018). Furthermore, in Tiebout (1956), when people choose a location to live, at the same time, they are willing to accept all the inherent fiscal consequences such as taxes, user charges, fines, and other obligations.…”

“…The income earned is usually used to fund the provision of local public goods and services such as schools, roads, parks, recreational facilities, sewage disposal, waste management, parking services, civil defense, and community development (Wood & Ong, 2012). Taxpayers have an obligation to pay taxes, while the government has an obligation to make sure that citizens as the taxpayers meet their rights (Umar et al, 2018). This is also supported by Abiola & Asiweh (2012) which states that the government has the responsibility to provide basic infrastructure for its citizens such as hospitals, schools, roads, bridges, airports, railways, and ports.…”

“…Related to PBB-P2, the benefits of the government that can be felt directly by the taxpayer are public goods where the land or building is located. Public perception of the availability of public goods is the strongest factor affecting the high level of tax non-compliance in developing countries (Umar et al, 2018).…”

Impact of Governance Quality and Religiosity on Tax Evasion: Evidence from OECD Countries

“…TE has been considered a subject of discussion for academic research in developed and developing countries (Nurunnabi, 2018;Richardson, 2016;Umar, Derashid, Ibrahim, & Bidin, 2019;Yamen, Allam, Bani-Mustafa, & Uyar, 2018). Policymakers have not had any specific solution to overcome these challenges.…”