Tax avoidance and evasion under economic political uncertainty: The moderating roles of tax morale and religiosity

Abstract

We examine the effect of Economic Political Uncertainty (EPU), measured by the World Uncertainty Index developed by Ahir et al. (2022), on tax evasion and avoidance across 39 countries from 1995 to 2015. We further examine the moderating effects of tax morale and religiosity. We highlight how EPU impacts corporate decisions to engage in tax sheltering, and we document the moderating role of tax morale and religiosity. The findings suggest that during periods of higher EPU, firms are more inclined to engage in tax avoidance than evasion. Additionally, higher levels of tax morale moderate the impact of EPU on tax avoidance in developed economies, while religiosity moderates the impact of EPU on both tax avoidance and evasion across the whole sample and specifically in developing countries. We contribute to the understanding of how sociocultural factors influence the relationship between EPU and corporate tax behavior. We offer important insights for policymakers designing tax regulations and firms developing tax strategies in different political and economic environments.