۱- Introduction

۲- Hypotheses development

۳- Research design

۴- Empirical results and analysis

۵- Conclusion

References

Abstract

Purpose: We examine the association political connections and tax evasion and we test whether corruption level affects this relationship.
Design/methodology/approach: Tax evasion measure is based on Schneider, Buehn and Monterngro (2010), while country’s political connection trend is based on Faccio (2006).
Findings: Using a sample of 35 countries, we document that political connections are positively associated with tax evasion and this relationship becomes stronger for high corrupt environment.
Practical implications: Our findings have policy implications for countries aiming to combat tax evasion since political connection trends in one country reduce the level of tax compliance. In addition, political connections and corruption play a complimentary role in increasing tax evasion practices.

Introduction

Both political connections and tax evasion have attracted a great deal of attention among policy makers as widespread phenomena that may adversely affect the economic development in one country. Research concerning the importance of political connections as a determinant of tax evasion is important since very little is currently known about this association at country level. Some studies have examined the effect of political connections on tax avoidance (e.g., Adhikari et al., 2006 in Malaysia), tax aggressiveness (Kim and Zhang, 2016 in USA), or on the capability of the state to enforce tax legislations (e.g., Lin et al., 2017 in China) at firm level. All these empirical enquiries have documented that political connections have an adverse effect on tax compliance behaviour through more tax avoidance, more tax aggressiveness practices and less effective enforcement of tax compliance by State tax authorities. However, there is no empirical evidence concerning the linkage between political connections and tax evasion using cross-country dataset. Accordingly, this study tries to complement the above streams of research by exploring the direct effect of political connection on tax evasion at country level. In addition, it tests whether corruption level moderates such a relationship. By doing so, our paper extends also previous literature dealing with the determinants of tax evasion initiated by Riahi-Belkaoui (2004).