ECONOMIC CONDITIONS AND TAX COMPLIANCE: THE MEDIATING EFFECT OF TRUST

This paper presents an attempt to combine the economic and sociological approaches to tax (non)compliance. It is argued that the way economic conditions affect (non)compliance might depend on the stock of political trust present in a country. More specifically, while economic hardship is expected to lead to lower compliance and higher shadow economy, this effect might be less substantial in societies with a higher level of trust. This happens because tax compliance decisions by individuals with higher trust in political institutions (and thus higher tax morale) are less affected by the changing economic costs and benefits of compliance. This theoretical argument is tested empirically with data on EU member states for the years 2000-2011. The paper finds empirical support for the main hypothesis.