Impact of Governance Quality and Religiosity on Tax Evasion: Evidence from OECD Countries

Abstract

The study examines the effects of governance quality and religiosity on tax evasion (TE) in the OECD (Organisation for Economic Co-operation and Development) countries. Further, the study investigates which government qualities and religiosities affect TE significantly. Ordinary least squares has been used to analyze the data gathered from 36 OECD countries covering the period of 2002–2015 based on the latest data of TE. The results show the negative impact of governance quality and religiosity on TE; it implies the higher level of governance quality and religiosity, and the lower level of TE across the countries. Among the governance qualities, the higher the government effectiveness (GE), the rule of law (RL), and regulatory quality (RQ), the lower the level of TE as they have a negatively significant impact on TE. On the contrary, the positive impact of the voice of accountability (VA) and political stability (PS) on TE implies that with increasing the VA and PS, TE also increases. Moreover, during the investigation of religiosities on TE, the study found that Catholics (CATH) have a significant and negative effect on TE, while Muslim (MUSL) is found to be positively significant. Overall findings of the study suggest the government of the OECD countries to emphasize enhancing the governance quality and practicing of peoples’ religious activities freely, which demotivates people to evade tax.