Institutional Determinants of Tax Morale in Pakistan

Ghulam Rasool Madni, Mohammad Aslam Chaudhary and Nawaz Ahmad

Abstract

Deterrence policy is a prevalent strategy in developing countries to collect tax revenues, but this approach is problematic due to inconsistent evidence. Tax morale is emerging as one of the most influential variables affecting the level of compliance in most countries. Given the extremely low tax to GDP ratio in Pakistan, the foundational intent of this study is to examine the impact of formal and informal institutions affecting the level of tax morale and to fill the space by considering tax morale as endogenous variable by acquiring the data from the World Values Survey for the wave of 2010-2014. Weighted ordered probit model is applied, the estimated results demonstrate that confidence in parliament, confidence in civil services, confidence in government, religiosity, marital status and person’s age play significant roles in building higher tax morale in the country. It has also been observed that Pakistani women have higher level of tax morale as compared to men. Married people turn out to have higher tax morale as compared to singles and financial satisfaction has also significant positive impact for tax morale while the impact of education was not found significant. From policy perspectives, the improvement of institutional quality has dire need to improve the level of tax morale