Tax Evasion: The Interplay of Happiness and Public Governance in Europe and OECD Nations

Abstract

This study investigates the relationship between happiness (HAPP) and tax evasion behaviour in European and OECD countries, with a focus on the moderating role of public governance. Happiness is measured using the Life Ladder Index from the World Happiness Report, while the shadow economy serves as a proxy for estimating tax evasion. Data from 36 countries—28 European and 8 OECD—spanning the period 2005–2022 was analysed using regression models. The findings reveal a significant negative relationship between happiness and tax evasion. Moreover, the moderating analysis highlights that happiness significantly affects tax evasion in countries with low public governance but has an insignificant impact in countries with high public governance. These results underscore the importance of strengthening public governance to mitigate the influence of psychological factors, such as happiness, on tax compliance behaviour.