The determinants and consequences of tax avoidance: A psychological contract perspective

This study examines the determinants and consequences of tax avoidance from the psychological contract perspective in tax relationships. The perspective relies on a reciprocal relationship between parties in predicting taxpayer behavior after evaluating how well the government manages taxes. Using data for a sample of 60 countries over 2009–2019, the results support the notion that taxpayers' willingness to pay taxes relies on how a government manages tax funds. Specifically, good government tax policies, namely better-quality regulations, less complicated bureaucracy, and more appropriate use of taxes, are associated with lower tax avoidance. Further, the results indicate that public participation and transparency should be implemented cautiously since they can motivate taxpayers to avoid tax payments. In addition to good tax policies, lower tax avoidance is observed in countries with a low tax burden, close government-citizens relations, and developed economy. Understanding the determinants of tax avoidance is important for government policy given that tax avoidance undermines national development across economic, social, and environmental dimensions.