Tax compliance & the welfare state: the role of education, ideology and immigration in tax morale.

Identifier:  TDX:2965

Handle: https://hdl.handle.net/20.500.11797/TDX2965

Authors:  Rodriguez Justicia, David

Abstract:
This thesis contributes to the literature on tax morale with three studies organized in chapters: Given the insights from the psychological and political science literature about the role of education in the formation of social values, Chapter 1 analyzes two channels through which education shapes tax morale. The results indicate that education has a positive impact on tax morale for those individuals that are net beneficiaries of the welfare state, and a negative impact for those that are net contributors. Furthermore, the results indicate that the more highly educated because of their better knowledge on public affairs exhibit higher levels of tax morale in countries that have better quality public services, a fairer tax system and higher quality institutions. Based on the predictions from a theoretical model, Chapter 2 analyzes the channels through which ideological stances influence citizens willingness to pay taxes. A causal link between ideology and tax morale is established by using instrumental variables estimation with heteroskedasticity-based instruments. The results indicate that tax morale decreases with ideological differences between citizens and their governments. Citizens ideologically to the right of the government exhibit a lower willingness to pay taxes than those to the left. Therefore, an electoral change from a right-wing to a left-wing government reduces tax morale, an effect that becomes stronger with public sector size. Finally, Chapter 3 analyzes whether the belief that immigrants represent a threat to welfare sustainability affects citizens' willingness to pay taxes. The results robustly reveal lower levels of tax morale among those citizens who believe that immigrants are a strain on their country's welfare system. Considering that citizens' perceptions are unrelated to real levels of immigration and its real economic impact, the obtained results suggest that the belief that immigration erodes the welfare system could become a self-fulfilling prophecy.