Tax Morale and International Tax Evasion

David M. Kemme · Bhavik Parikh · Tanja Steigner

117 citations0/0 files storedJournal of World Business

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Corporate Taxation and Avoidance Taxation and Legal Issues Taxation and Compliance Studies

Abstract

Low tax morale is associated with domestic tax evasion. We find evidence of cross-border equity flows designed to evade taxes in low tax morale countries. Using Foreign Portfolio Equity Investment (FPI) flows into 21 OECD countries from 138 source countries and an index of tax morale from the World Value Survey (WVS), we show that individuals in countries with low tax morale engage in tax evasion via roundtripping through tax havens. This allows them to benefit from differential taxes applied to foreign investors vis-a-vis domestic investors. Our results remain robust to various measures of tax morale and distinct subsamples.

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References

1998Law and Finance 1968Crime and Punishment: An Economic Approach 2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 2000Investor protection and corporate governance 1972Income tax evasion: a theoretical analysis 2000Shadow Economies: Size, Causes, and Consequences 2003FDI and economic growth: the role of local financial markets 2012Notes on CEPII’s Distances Measures: The GeoDist Database

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