Effect Of Culture On Tax Evasion Accounting Essay

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Tax evasion is a Phenomenon presents in all societies that use taxes to finance government expenditures, Although penalties and audit exist, tax evasion is still a wide spread phenomenon and continue to be a problem for many countries, it places negative effect on country's budget through lost revenues, according to (Tsakumis et al., 2007) Greece's underground economy is estimated to equal approximately 40% of GDP , Italian tax authorities estimate that 15% of all economic activity goes unreported , in USA , estimated of lost tax revenues for 2001 were as high as $353 billion . Gurtner (2005) has mentioned that developing countries are losing at least USD 50 billion per year, a loss equivalent to the annual official aid of the OECD countries to developing countries. This is the amount required by the World Bank and the UNDP to achieve the Millennium Development Goals. It is also equivalent to six times the estimated annual costs of achieving universal primary education. And it is almost three times the cost of universal primary health coverage.

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Tax evasion refers to an illegal reduction of tax payment; this illegal reduction can take several different forms, such as non-declaration or under reporting of income, over reporting of deductible expenses, moonlighting, smuggling and others. Generally tax evasion involves hiding the real value of a legal transaction to avoid fiscal (i.e. Tax).

There are many studies have examined the effect of many variables on tax evasion such as culture, penalty, tax audit …etc. The purpose of this paper is to highlight influence of such factors on tax evasion around the world and compare its effect from area to other.

This paper depends on review number of studies that occurred in several countries and indicate to the extent of influence of each factor from one country to other.

It may be useful to mention here, those factors either have direct effect on tax evasion or indirect effect through its effect on other factors, for example, the confidence in the government is indirect factor because it has impact on tax moral and consequently on tax evasion level.

In this paper, some factors, not all, have been discussed. Those factors including culture, penalties, tax audit, tax rate, corruption, the confidence in the government and education.

2.0 Factors affect tax evasion

Several studies have been conducted about factors effecting tax evasion in several countries. Thus, the purpose of this paper is to review the results found by those studies and explore the extent to which each factor effects tax evasion in every single country investigated in this study. This paper focuses on some, not all, tax evasion factors, including culture, penalties, tax audit, tax rate, corruption, the confidence in the government and education. Other factors such as gender, age, income level and so on are not included in this paper.

2.1 Effect of culture on tax evasion

There are different definitions of culture reflect different theoretical bases for understanding, or criteria for evaluating, human activity. Culture generally refers to patterns of human activity and the symbolic structures that give such activities significance and importance. According to Frey and Torgler (2006) culture can be viewed as the ideas, values, beliefs, behavioral strategies, perceptual models and organizational structures that reside in individual brains, and can be learned by other individuals through imitation, observation (plus inference), interaction, discussion and/or teaching presents it as a type of language, based on rule systems like ideas, values, and external and internal institutions (e.g., customs and conventions).

Tsakumis et al., (2007) have conducted a study to investigate the influence of national culture on tax evasion across 50 countries from different areas worldwide. they have used Hofstede (1980) culture framework as a basis of their hypothesis, they used Hofsteade`s four cultural dimensions that include uncertainty avoidance, individualism, masculinity and power distance as a measures of culture and analyzes their relation to tax evasion for 50 countries in various geographic areas. they depend on Hofstede`s results to formulate four hypothesis as the following:

The higher the uncertainty avoidance in a country, the higher the level of tax evasion in that country.

The higher the individualism in a country, the lower the level of tax evasion in a country.

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There will be a significant relation between masculinity and the level of tax evasion in a country.

The higher the power distance in a country, the higher the level of tax evasion in a country.

By testing this hypothesis, they found that their results support the general proposition that national culture as proposed by Hofsteade is a significant factor in explaining tax evasion level across countries. the results indicate that higher (lower) uncertainty avoidance and power distance are associated with higher (lower) tax evasion levels across countries while higher (lower) individualism is associated with lower (higher) tax evasion across countries , they also found that higher (lower) masculinity is associated with lower (higher) tax evasion.

Chan et al. (2000) have conducted a study to explore similarities and differences in taxpayer compliance behavior between U.S. and Hong Kong Chinese taxpayers.

They found that there are significant cultural differences between U.S citizens and Hong Kong Chinese, U.S. citizens view themselves as distinct and separate entities and place great value on individual rights. In contrast, Hong Kong Chinese tend to be collectivists, So U.S citizens are expected to be more likely to obey tax laws than Hong Kong Chinese.

Importance of the cultural factor increase because of its significant role in the determination of individual tax morale, it is widely known that there is negative correlation between tax evasion level and tax moral or in other words the individuals` willingness to pay tax. This Fact is confirmed by many studies that carried out in many countries. For example, by using survey data from 30 West and East European countries, Frey and Torgler (2006) have found that a high negative correlation between perceived tax evasion and tax moral.

Torgler and Schneider (2007) have conducted a study to examine citizen tax moral within three multicultural European countries, Switzerland, Belgium and Spain, they examine the impact of culture and institutions using data sets from the world values survey and the European values survey, the results they found indicate the tendency that cultural and regional differences affect tax moral (and then tax evasion) in those three countries.

The same results in pertaining regions as one of culture's components have found by McGee (1997-1998) who study in three papers the ethics of tax evasion from a Jewish, Christian and an Islamic perspectives, he found that all these religions affected on tax moral via its position from tax evasion.

Stack and Kposowa (2006) have conducted a study focused on the importance of religion in shaping cultural attitudes on the unacceptability of tax fraud, they analyze data on 45728 individuals in 36 nations from the world values survey covering religions on the west and the east. The results determined that the higher the individual `s level of religiosity, the lower the tax fraud acceptability, the study indicate that the promotion of participation in religion and confidence in government might be sound strategies for reducing tax fraud.

2.2 Effect of Penalties and tax audit on tax evasion

Most of world states have rules which aim at enforcing taxpayers' compliance. Penalties are designed to provide disincentives for non compliance in order to make tax underpayments and other types of non compliance more costly than compliance. In the other hand, tax audit is one of the most effective policies to protect the behavior of tax evasion, the level of tax audit can be determined by two elements. The first one is how many taxpayers are selected for audit? And the second one is how much intensive the audit is?

There are several studies have been concerned with determining the effect of penalties and tax audit on tax evasion, Park and Hyun (2003 ) conducted a study in which they examine the determinants of tax compliance such as penalties and tax audit using experimental data for Korea, they found that the tax audit and the penalty rate are important deterrence from tax evasion, although the penalty rate is more effective, they found that the most effective policy tool to induce higher compliance is to levy heavy penalty on un reported income.

Hyun (2005) has conducted a study of tax compliance in Korea and Japan, although Korea and Japan have geographically close location and historically similar background with each other, however Korea was evaluated to have much lower level of tax compliance (i.e. higher tax evasion ) than that of Japan. He analyzed the determinants of tax compliance and illustrated why they have different levels of tax compliance between Korea and Japan. In pertaining to tax audit and penalty he compared the level of tax audit and penalty structure for two countries and found that Japan has much higher level of policies in both tax audit and penalty structures, Japan has almost three times higher value in the ratio of selected taxpayers for audit than in Korea, he found that Korea has a higher level of penalty for evasion with out intention than that in Japan, however Japan has much a higher level of penalty rate for intentional evasion than that in Korea.

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Alm and McKee (2006) have examined how individuals respond in their compliance decisions to a "certain" probability of audit and to information concerning the "productivity" of an audit. They found that" the announcement of audits increases the compliance rate of those who are told that they will be audited. However, the compliance rate of those who know, by elimination, that they will not be audited falls, and the net effect is that overall compliance falls. They also found that subjects respond to increased audit effectiveness only when they are expecting to be audited; that is, more productive audit procedures alone are insufficient inducements to comply unless accompanied by a heightened expectation of the audit itself."

Snow and Warren Jr (2005) have conducted a study about tax evasion under random audit with uncertain detection; they found that taxpayer uncertainty about the proportion of evaded tax that an audit will detect increases compliance for taxpayers with a positive index of absolute prudence. They conclude that stiffer penalties which have a direct deterrence effect would also enhance the potential for a policy that fosters detection uncertainty to increase taxpayer compliance.

Engel and Hines Jr (1998) have conducted a study about tax evasion dynamics, they analyzed a feature of tax enforcement that encourage a particular dynamic tax evasion pattern in U.S. in pertaining to penalties, they found that for the united states, the penalties play a rather small role in deterring tax evasion, they found that doubling the penalty rate from 25% to 50% reduces tax evasion by just 8% of its current level. They induce that this small behavioral response reflects two aspects of tax penalties: the low rate at which penalties are currently applied and the fact that tax enforcement relies rather little on penalties. The same study has found that unreported personal income in the United States would rise by 72% from 10.6% of current income to 18.2% in the absence of retrospective auditing. Some countries resorted to the use of social penalties such as social stigmatization that include for example announcement of taxpayer's activities in the newspaper to prevent or reduce tax evasion, according to (Tsakumis et al., 2007) the study that conducted by Porcano and Price (1993) shows that social stigmatization has a significant deterrent effect on individuals` hypothetical tax evasion. Other interesting findings have concluded by Maciejovsky et al. (2007) who found that although in the high-audit condition tax compliance was generally higher than in the low-audit condition. But, compliance decreased sharply after an audit and increased slowly in the next three consecutive trading periods in the high-audit condition. In the low-audit condition compliance decreased after an audit steadily, their results also indicate that higher sanctions marginally increased compliance relative to lower sanctions. according to them their findings replicate Mitton`s (2006) findings, they also perceived that punishments have a considerably weaker effect on compliance, this finding agreed with (Engel , Hines Jr , 1998 )` finding, and according to them this latter finding is in line with Baldry (1987).

2.3 Tax Rate

Tax rate describes the burden ratio at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, effective, effective average, and effective marginal. ( [1] ) In pertaining with tax rate, there is a consensus among researchers that tax rate have a significant impact on tax evasion where there is positive correlation between tax rate and tax evasion, the empirical analysis of Peter (2008) study provide a strong evidence of a positive relationship between tax evasion and tax rates in 33 countries, 27 countries of them are low and middle income countries from Eastern Europe and central Asia and the others include developed countries (Germany, Greece, Ireland, Portugal, Korea and Spain ). Torgler (2003) has found that the high tax rate in Latin America has the highest percentage of all reasons of tax evasion. Engel and Hines Jr (1998) have found that the tax evasion rate in U.S.A. is positively correlated with tax rate changes.

Bayer (2006) found that higher tax rates leads to more tax evasion. He argued that lower tax rates might be a good policy measure to reduce tax evasion.

Landsman, et al. (2002) has confirmed the results above when they conducted a study about the determinants of capital gains tax compliance. It may be useful to mention that in 2001 Russia dramatically reduced it's higher rates of personal income tax (PIT), establishing a single marginal rate at the low level of 13%. Ivanova et al. (2005) have examined whether the strong performance of PIT revenue ( i.e. reduce in tax evasion ) was it self a consequence of this reform, they conclude that it remains unclear whether this was due to the parametric tax reform or to accompanying changes in enforcement that took place in the same time, however, they suggested that in circumstances where non compliance is rampant, and the prospects of monetary penalties for evasion has little impact, cutting of tax rates is in principle most likely to improve compliance. Papp and Takats (2008) have influenced by Russian experience in this area and prepared a working paper to show how tax rate cuts can increase revenues by improving tax compliance and reduce tax evasion, relatively small tax rate cuts, will decrease incentives to evade taxes, they pointed out that "if the tax authority is relatively weak, no tax rate changes will induce compliance. With medium level tax authority strength, however, tax rates can have a pivotal role."

2.4 Effect of corruption on tax evasion

Corruption can be defined as an unlawful or unauthorized act engaged in by a public official using his or her position to receive a bribe, directly or through a family member or associate, in exchange for making a benefit available to a member of the public (e.g., a taxpayer) (Imam and Jacobs, 2007). Akdede (2006) has defined a corruption as an illegal activity of a government official to gain a personal benefit.

For the purpose of this paper, corruption term here indicates to tax corruption that can be defined in terms "of the services which are subject to bribery agreements between taxpayers and the administration. Taxpayers make bribes for two groups of corruption services: those related to non-compliance and those related to preferential services (speeding up procedures, tax refunds, etc)". (Pashev, 2006)

The previous reference has mention that according to World Bank study on corruption in transition economies, tax corruption is ranked second a among other types of corruption in terms of number of companies involved (after bribes for licenses and permits).

According to (Caraciuc et al ., 2003 ) the corruption phenomenon is rather widespread not only in developing countries, but also in the states with developed economics such as USA, Great Britain, Germany, Hong Kong, Singapore, and Holland which are known to have a rather low level of corruption. They conduct a study about corruption and tax evasion; they found that the tax evasion could be much lower if the corruption is decreased.

Torgler (2003) has found that corruption is a main reason of tax evasion in Latin America, He indicate that on average 44.2 percent of the individuals in Latin America state that individuals evade taxes because there is corruption.

Escobari (2004 ) has found that a more corrupt tax administration leads to higher tax evasion level , for the Bolivian data , he found that the maximum bribe a corrupt tax official can charge is 19% of taxpayer's income. Higher bribes than this maximum will lead to the zero-corruption out come in terms of evasion. This result is similar with what Akdede (2006) has found, he found that the size of bribe can negatively affect tax evasion. It is shown that when a bribe is sufficiently large, taxpayers prefer to pay their taxes voluntarily, not to evade taxes. Imam and Jacobs (2007) have found that the low revenue collection as a sharp of GDP in Middle East compared to other middle- income regions is due in part to corruption. They suggested that to raise tax revenue, governments in this region should implement reforms that either reduce corruption or raise revenues from tax categories that are less susceptible to corruption.

2.5 The confidence in the government

Torgler (2003) pointed out "Taxpayers are sensitive regarding the way the government uses the taxes. There is an input output relation between what an individual pays with his/her taxes and what comes back from the government. Thus, individuals' tax compliance might be influenced by the benefits received from the government in form of public goods compared to the price they paid for them. Individuals might feel cheated if taxes are not spent adequately".

Wintrobe (2001) has found that some of the causes of the high level of tax evasion in Russia is the level of trust in the Russian government appears to be extremely low.

The confidence in the government is one of the important factors that effect on tax evasion via its effect on tax moral. Most of studies that analyze tax moral have indicate to the confidence in the government as one of the variables that constitute tax moral. (Frey and Torgler, 2006; stack and kposowa, 2007; Torgler, 2003; Torgler and Schneider, 2007; and Hyun, 2005) are examples of those studies that indicate the confidence in government as a main factor in tax moral. All these studies have indicated that there is a positive relationship between the confidence in the government and tax moral.

2.6 Effect of the education on tax evasion:

In pertaining of education effect on tax compliance (i.e. tax evasion), a study of Chan et al,.(2000) to explore similarities and differences in taxpayer compliance behavior between U.S. and Hong Kong Chinese taxpayers, have found that: "U.S. respondents' decisions to comply with tax laws were primarily driven by their age and education, which in turn positively influenced moral development and attitude. On the other hand, Hong Kong subjects demonstrated an indirect, negative link between education, moral development, attitude, and compliance. Although Hong Kong subjects felt the tax system was generally fair, such a positive perception was moderated by lower levels of education and moral development, which both contributed, indirectly, to a less favorable attitude."

A study of tax evasion in 33 countries in Europe that conducted by McGee and Tyler (2006 ) has found that the lower educated people tend to be more opposed to tax evasion than the higher educated people.

McGee (2007) has found that people in Japan, China, and Korea tend to be less opposed to tax evasion as their level of education increases. He argues that this could be because the more educated people are, the less they feel that they have an absolute obligation to pay the state whatever it demands in taxes. He argues that "The more educated people are, the more income they make, as a general rule. As income increases, perhaps the feeling that there is an obligation to give that income to the government decreases." The different results has found by a study of Gerxhani (2002) about tax evasion in Albania. He found that more educated people evade less. The respect of rules and the importance of own reputation were more of a concern among highly educated people.

3.0 Discussion and Conclusion

In this section, the information, which is obtained about the effect of the factors mentioned above on tax evasion, will be discussed critically.

In pertaining of effect culture on tax evasion , we can say that there is a consensus among researchers that the culture of taxpayers in its wide mean has important effect on their compliance via its role in shaping their ethics, tax moral ( i.e. what is ethical in one country, may be unethical in other, depending of country's culture ), but, the extent of this influence is different from geographic area in the world to other, rather within the same country, for example in countries where the individualism - as a cultural dimension- is high such as USA, UK and Canada where their citizens view to their selves as distinct and separate entities and place great value on individual rights, level of tax evasion is low, whereas in other countries where the individualism is low such as Hong Kong ,Indonesia and Malaysia where its citizens tend to be collectivists, its expected that citizens of these countries are less obey of tax laws and then tax evasion level is expected to be high. However, this matter can not be considered absolutely right. For example, Italy is classified as high individualism country, however, tax evasion in Italy is high as we mentioned before. Venezuela as another example, according to Tskumis et al. (2007) study is high level tax evasion country based on individualism dimension, but it is low level tax evasion country if we take other dimension provided by the same study masculinity. So, it can be said that effect of cultural dimensions in tax evasion level are interrelated, so one of the four dimension prevails the others .we cannot ignore influence of the legal, political and economic conditions on the culture.

Stack and Kposowa (2006) argue that the higher the individual's level of religiosity, the lower the tax fraud acceptability, but in my opinion, this depends on position of taxpayers' religion from tax fraud and tax evasion .however , in my believe influence of religion on tax evasion seems to be limited . For example in countries such as USA, UK where its religion seems to be lenient with tax evasion, it is found that there is low level of tax evasion. On the other hand, countries such as Korea where its religion is against tax evasion, tax evasion level is high.

With regard to the penalties, most of studies have confirmed that the higher penalties increase tax compliance and reduce tax evasion; (Park and Hyun, 2003; Hyun, 2005; and snow and warren Jr, 2005) are examples. On the other hand, there are several studies played down importance of penalties in increasing tax compliance and reducing of tax evasion such as Engel and Hines JR (1998). Overall, it can be said that there is a consensus among researchers that penalties have impact on tax evasion, but, there is no consensus about the amount and extent of that impact. it leads us to ask ,why are penalties have strong effect on tax evasion in countries such as Korea whereas its impact seems to be limited in other countries such as USA. The reason is related the cultural differences among countries that make some of tax compliance penalties work well in some country whereas not work well in other country that has different culture.

The cultural differences among countries may interpret why social penalties have a significant deterrent effect on individuals' tax evasion on a country such as USA where lower uncertainty avoidance, higher individualism, lower masculinity, and lower power distance whereas in another country such as Yemen, Guatemala where higher uncertainty avoidance, lower individualism, lower masculinity, and higher power distance, social stigmatization may not have the same deterrent effect. So, the other kinds of penalty such as higher monetary penalties and imprison may be more effective in countries where tax evasion is common practice. However, in a system with a high level of corruption among public officials, high penalty rates don't result in improving the fiscal discipline or growth of the budget revenues, but simply intensify corruption. It may be useful to mention here, Guatemala has the highest tax morale among all Latin American countries, followed by Honduras reduced the penalties in the tax reform of 1996.

With regard to tax audit, there is a consensus among researchers that tax audit is one of the most effective policies to protect the behavior of tax evasion. Tax audit increasingly become integral part of any taxation system.

With regard to tax rate, there is no disagreement among researchers about importance and influence of this factor on tax evasion. It is clear that low tax rate leads to low tax evasion level whereas higher tax rates leads to more tax evasion. This finding is confirmed by many studies that are carried out worldwide, whether in developed countries and developing countries alike. Several studies suggested that cutting of tax rates might be a good policy to reduce tax evasion. There are several studies indicated that reducing of tax rates led to increase tax collection in those countries that implemented this tax reform such as Russia, but, no tax rate changes will induce compliance as long as the tax authority is weak.

The studies that discussed effect of corruption on tax evasion traced a mount or extent of corruption effect with a mount of bribe required by tax authority officers. Taxpayers may prefer to pay tax rather than evade tax if the amount of bribe is large.

Corruption in the tax authority is a real problem in developing countries especially those countries that still used tax system that allows personal contacts between taxpayer and tax authority officers where there are many opportunities for a tax official to demand bribes .

The low salaries of tax officers may be the main reason for corrupting of tax officers, Bulgarian tax officials identify low wages as the prime reason for corruption (Pashev, 2006).

Weakness of penalties that imposed to punish the corrupted tax officer when discovering him may encourage the corruption. Modernizing of tax administration via computerizing tax system, looking for communication tools don't allow personal contact between taxpayer and tax officer, increasing of tax authority officers' salaries and strict penalties will contribute in curbing of corruption.

With regard to the confidence in the government, this factor is important because of its impact on the tax moral and then tax evasion. I believe when the citizens or taxpayers feel that their government is not responsive to their wishes, when they do not trust it they will be unwilling to pay their taxes, and then, they will attempt to evade their taxes. The solution for this problem may be in building of democratic political systems that create exchange relationship between citizens and the government, since a government cannot be sued if it does not deliver on its promises.

With regard to the education, it is noted that there is no consensus among researchers about the relationship between tax evasion and education level; almost most of studies perceive this relation is positive whereas few of studies perceive the opposite. This discrepancy leads us again to the cultural differences among countries that in my opinion can interpret this discrepancy.

To conclude, tax evasion still a Phenomenon presents in all societies that use taxes to finance government expenditures. The study of Tax Evasion and its determinants is important to understand this phenomenon and suggesting the proper treatments to curb it. There is a consensus among researchers worldwide that all the factors that mention above have influence in tax evasion level. However, they differ in amount and extent of this influence from country to other. There is a consensus about influence of some of factors such as tax rate and corruption; there is a positive relationship between this two factors and tax evasion level in all countries world wide whereas in pertaining of education, we note a different influence from country to other.

There is no consensus about the effectiveness of penalties as a deterrence tool, is it effective tool or not? Some researchers lessen importance of penalties whereas the others perceive it a crucial tool.

The cultural differences among countries are the base to interpret many of these differences.

Table (1) shows a summary of factors effect tax evasion which have been mentioned above

No.

Author

year

Country

The factors that he /they study

The results

1

Tsakoumis et al

2007

50 countries

National culture

Their results support the general proposition that national culture as proposed by Hofsteade is a significant factor in explaining tax evasion level across countries. The results indicate that higher (lower) uncertainty avoidance and power distance are associated with higher (lower) tax evasion levels across countries while higher (lower) individualism is associated with lower (higher) tax evasion across countries , they also found that higher (lower) masculinity is associated with lower (higher) tax evasion.

No.

Author

year

Country

The factors that he /they study

The results

2

Chan et al

2000

USA and Hong Kong

Effect of cultural differences on tax compliance using Fischer et al.'s (1992) model

The majority of the predicted relationships in the Fischer Model have been supported. Efforts to increase taxpayer compliance need to be tailored to the structure of the tax system and the predominant culture of the taxpayers.

3

Frey and Torgler

2006

30 West and East European countries

Tax moral

A high negative correlation between perceived tax evasion and tax moral.

4

Torgler and Schneider

2007

Switzerland, Belgium and Spain

tax moral within three multicultural European countries

the results they found indicate the tendency that cultural and regional differences affect tax moral (and then tax evasion) in those three countries

5

McGee

1997-1998

N/A

the ethics of tax evasion from a Jewish, Christian and an Islamic perspectives

All these religions affected on tax moral via its position from tax evasion. The Christian position on tax evasion is that there is no coherent, unified, no contradictory position. It is not always unethical for a Muslim to evade taxes and regulations that have the same effect as taxes. As for Jews perspective, tax evasion is never or almost never ethical.

6

Stack and Kposowa

2006

36 nations world wide

importance of religion in shaping cultural attitudes on the unacceptability of tax fraud

The results determined that the higher the individual `s level of religiosity, the lower the tax fraud acceptability, the study indicate that the promotion of participation in religion and confidence in government might be sound strategies for reducing tax fraud.

7

Park and Hyun

2003

Korea

tax audit and

the penalty rate

Both the tax audit and the penalty rate are important deterrences from tax evasion, although the penalty rate is more effective.

8

Hyun

2005

Korea and Japan

Tax audit , penalty , tax rate and tax culture

Japan has much higher level of policies in both tax audit and penalty structures than those of Korea . Korea has the lower level of tax culture by measuring the attitude toward cheating taxes than that of Japan. The effect of tax rate on the level of tax compliance is negligible, as there is a little difference in the tax rates between the two countries .So, Korea was evaluated to have much lower level of tax compliance than that of Japan.

No.

Author

year

Country

The factors that he /they study

The results

9

Alm and McKee

2006

N/A

Tax audit

They found that" the announcement of audits increases the compliance rate of those who are told that they will be audited. However, the compliance rate of those who know, by elimination, that they will not be audited falls, and the net effect is that overall compliance falls. They also found that subjects respond to increased audit effectiveness only when they are expecting to be audited; that is, more productive audit procedures alone are insufficient inducements to comply unless accompanied by a heightened expectation of the audit itself."

10

( Snow and Warren Jr

2005

N/P

Tax audit

They found that taxpayer uncertainty about the proportion of evaded tax that an audit will detect increases compliance for taxpayers with a positive index of absolute prudence.However, for detection uncertainty to increase compliance, prudent taxpayers must believe that audits are effective in detecting a substantial fraction of tax evasion given current penalty rates.

11

Engel and Hines Jr

1998

USA

Tax enforcement (Penalties and tax audit) and tax rate

, they found that for the united states, the penalties play a rather small role in deterring tax evasion, they found that doubling the penalty rate from 25% to 50% reduces tax evasion by just 8% of its current level. They induce that this small behavioral response reflects two aspects of tax penalties: the low rate at which penalties are currently applied and the fact that tax enforcement relies rather little on penalties. The same study has found that unreported personal income in the United States would rise by 72% from 10.6% of current income to 18.2% in the absence of retrospective auditing. They have found that the tax evasion rate in U.S.A. is positively correlated with tax rate changes.

No.

Author

year

Country

The factors that he /they study

The results

12

(Maciejovsky et al

2007

N/A

Tax audit and punishments

Although in the high-audit condition tax compliance was generally higher than in the low-audit condition. But, compliance decreased sharply after an audit and increased slowly in the next three consecutive trading periods in the high-audit condition. In the low-audit condition compliance decreased after an audit steadily, their results also indicate that higher sanctions marginally increased compliance relative to lower sanctions. according to them their findings replicate Mitton`s (2006) findings, they also perceived that punishments have a considerably weaker effect on compliance

13

Peter

2008

33 countries

Of these countries 27 from Eastern Europe and Central Asia, and 6 are developed

countries m

If recent reforms in taxation ( especially cutting of tax rates)and labor regulations in several transition and developing countries contributed to the observed decline in tax evasion.

There is a strong evidence of a positive relationship between tax evasion and tax rates in 33 countries

14

Torgler

2003

Latin America countries

Tax moral in Latin America factors that systematically affect tax morale

He found that the high tax rate in Latin America has the highest percentage of all reasons of tax evasion

15

Bayer

2006

N/A

Tax rate

The higher tax rates leads to more tax evasion

16

Landsman et al

2002

N/A

the determinants of capital gains tax compliance

They found that higher tax rates leads to more tax evasion

17

Ivanova et al

2005

Russia

Tax rate

They conclude that it remains unclear whether this increase in tax revenue was due to the parametric tax reform (cutting of tax rate) or to accompanying changes in enforcement that took place in the same time, however, they suggested that in circumstances where non compliance is rampant, and the prospects of monetary penalties for evasion has little impact, cutting of tax rates is in principle most likely to improve compliance.

No.

Author

year

Country

The factors that he /they study

The results

18

Papp and Takats

2008

N/P

They effected by Russian experience

Tax rate

Relatively small tax rate cuts, will decrease incentives to evade taxes. They pointed out that "if the tax authority is relatively weak, no tax rate changes will induce compliance. With medium level tax authority strength, however, tax rates can have a pivotal role"

19

Imam and Jacobs

2007

Middle east Libya Oman, Bahrain

Saudi-

Arabia

Yemen Algeria UAE Sudan

Syria Jordan Lebanon

Egypt Tunisia and Morocco

corruption

The low revenue collection as a share of GDP there compared to other middle-income regions is due in part to corruption, and certain taxes are more affected than others.

20

Akdede

2006

N/A

Corruption

He found that the size of bribe can negatively affect tax evasion

21

Caraciuc et al

2003

Moldova

corruption

The tax evasion could be much lower if the corruption is decreased.

22

Escobari

2004

Bolivia

corruption

A more corrupt tax administration leads to higher tax evasion level , for the Bolivian data , he found that the maximum bribe a corrupt tax official can charge is 19% of taxpayer's income.

23

McGee and Tyler

2006

33 European countries

Education, gender, age, and income level

Older people are more opposed to tax evasion than younger people; less educated people are more opposed to tax evasion than better educated people; and poorer people are more opposed to tax evasion than wealthier people.

24

McGee

2007

Japan, China, and Korea

education, age gender, religion and

People in these countries tend to be less opposed to tax evasion as their level of education increases. He argues that this could be because the more educated people are, the less they feel that they have an absolute obligation to pay the state whatever it demands in taxes. He argues that "The more educated people are, the more income they make, as a general rule.

25

Gerxhani

2002

Albania

Education and other factors

He found that more educated people evade less. The respect of rules and the importance of own reputation were more of a concern among highly educated people.

26

Wintrobe

2001

Russia

The trust on the government

Some of the causes of the high level of tax evasion in Russia is the level of trust in the Russian government appears to be extremely low