Can public efficiency increase tax morale? Evidence from 18 Latin American countries

Abstract

By increasing trust in institutions, public efficiency could be a further key determinant of tax morale. Public efficiency is closely related to the concept of productive public spending, while total public spending also depends on government ideology. In a society where public efficiency and tax morale are high, a virtuous “tax circle” can be triggered since government can increase both tax revenues and productive public spending. Using the Latinobarometer wave (which includes 20,204 interviewees from 18 Latin American countries), the empirical analysis finds that public efficiency would have to increase significantly before its marginal effect on tax morale becomes positive. Hence, the virtuous “tax circle” can trigger in the long term. However, the cross-sectional analysis cannot highlight the potentially significant role of ideological motives, so robustness checks are performed to show that our results are neither driven by such motives nor by the multilevel structure of the dataset or by the sample distribution.