The Impact of Corruption on Firm Tax Compliance in Transition Economies: Whom Do You Trust?

TitleThe Impact of Corruption on Firm Tax Compliance in Transition Economies: Whom Do You Trust?
Publication TypeJournal Article
Year of Publication2013
AuthorsAlon A., Hageman A.M
JournalJournal of Business Ethics
Date PublishedSep
Type of ArticleArticle
ISBN Number0167-4544
Accession NumberWOS:000324781500002
Keywordsbehavior, BUSINESS, CORRUPTION, countries, ETHICS, evasion, foreign direct-investment, Generalized trust, Growth, organizational corruption, Particularized trust, perspective, SOCIAL norms, Tax compliance, transition economies

Tax compliance is an important issue for governments and the public alike. To meet public needs and fund public mandates, firms around the world are expected to comply with tax laws. Factors that are related to organizational (firm) tax compliance have not been sufficiently examined in the literature. Owing to the increasing global influence of transition economies, factors associated with firm tax compliance in transition economies are particularly of interest. Based on a sample of over 5,000 firms from 22 former Soviet Bloc transition economies, we find that higher levels of corruption and higher levels of particularized trust (reliance on friends and family) are associated with lower levels of tax compliance. Interestingly, we also find that the negative relationship between corruption and tax compliance is weakened in situations of higher generalized trust (trust in strangers). Overall, our study's results suggest that institutional factors play an important role and are related to firm tax compliance behavior in transition economies.