Tax Evasion, Tax Morale, and Trade Regulations: Company-Level Evidence from Poland

Abstract

Objective: To investigate the determinants of the phenomenon of evading taxes among polish entrepreneurs. In particular, I examine such factors as tax administration satisfaction, tax morale, tax burden, and the influence of trade regulations.

Research Design & Methods: A survey study conducted in 2017 in Poland among 454 enterprises. I used the zero-inflated negative binomial modelling technique to examine the impact of factors on the probability and extent of tax evasion. I also checked the robustness of the obtained results.

Findings: I report low tax morale of company managers, low level of satisfaction of tax administration, and tightness of trade regulations as important factors that impact the probability of tax evasion. Moreover, tax morale plays an important role in explaining the extent of underreporting income. I report no significant impact of tax burden on the probability to evade taxes and the magnitude of evasion.

Implications & Recommendations: Tax burden should not be considered as predominant in explaining tax evasion inclinations. More social aspects, like the perceived quality of governance, the level of trade regulations, and tax morale, become increasingly important in affecting tax evasion attitudes.

Contribution & Value Added: I offer empirical evidence on the determinants of tax evasion. To that end, I utilise a new econometric approach and own primary data.