Tax evasion and public governance before and after the European “big bang”: a red flag for policymakers

Abstract

Purpose The purpose of this study is to examine the impact of public governance quality on tax evasion levels in old (pre-2004) and new (post-2004) European Union (EU) members before and after the 2004 EU-enlargement. Design/methodology/approach This study uses panel data of 28 EU countries over the period 1996-2015. Tax evasion is measured using an updated version of the shadow economy size based on the light intensity, as calculated by (Medina and Schneider, 2018). The World Bank’s worldwide governance indicators are used as a measure of public governance. Findings The results indicate that new EU members have higher tax evasion levels compared to the old ones before and after the 2004 EU enlargement. The findings also report that the public governance quality is superior in old members throughout the 1996-2015 period. Furthermore, the authors found that after the EU enlargement, tax evasion levels decreased in both EU groups; however, the authors noticed an improvement in the public governance quality in new members and a deterioration in old ones. Additional analysis confirms the impact of public governance quality as an effective tool for reducing tax evasion behavior in both EU groups before and after the EU enlargement. Practical implications The findings are potentially useful for EU policymakers in identifying the most effective tools that can minimize tax evasion levels in EU countries. Additionally, the results are alarming as they show the negative consequences of the EU enlargement in old EU members. Thus, policymakers should consider them when setting their rules and regulations to reduce the significant differences between both EU groups to prevent member states from potentially exiting the EU. Originality/value To the best of the knowledge, this is the first study that examines the tax evasion behavior and public governance quality in the EU before and after the EU enlargement.

Life Satisfaction and Tax Morale in Azerbaijan: Mediating Role of Institutional Trust and Financial Satisfaction

“…The evidence is straightforward and in the same line as previous studies [10,12,14,22]. Additionally, we find that tax morale is harmed when institutional trust [11,16,[21][22][23][24][25][26] and financial satisfaction [7,10,12,14,22,[27][28][29][30][31][32] are low. Finally, we find a significant relationship between life satisfaction and tax morale when we use our controls such as age, gender, job experience, and educational factors.…”

“…[21] points out that the lower the level of trust in government, the higher the level of tax evasion among countries. If taxpayers perceive the tax burden to be unfair and distrust the authorities, they will evade taxes [11,[22][23][24][25].…”

Tax evasion, corruption and COVID-19 health risk exposure: a cross country analysis

“…Medina and Schneider (2018) updated the multiple indicators multiple causes (MIMIC) approach by replacing the gross domestic product (GDP) measure by the light intensity approach and the predictive mean matching method. The shadow economy is used as a proxy of tax evasion in previous studies (Yamen et al, 2018;Yamen et al, 2020).…”

Carbon emissions reduction and tax evasion behaviour: a trade-off between environmental goals and economic feasibility

“…The proxy used to test tax evasion is the shadow economy, as measured by Medina and Schneider (2018). It has long been used in the literature as a measure for tax evasion (Yamen et al , 2018; Yamen et al , 2023a; Yamen, 2021; Yamen et al , 2023b). The Medina and Schneider index is based on multiple indicators and multiple causes (MIMIC) models, which are a type of structural equation modeling.…”