Torgler, Benno
Working Paper
The Importance of Faith: Tax Morale and Religiosity
CREMA Working Paper, No. 2003-08
Provided in Cooperation with:
CREMA - Center for Research in Economics, Management and the Arts, Zürich
Suggested Citation: Torgler, Benno (2003) : The Importance of Faith: Tax Morale and Religiosity,
CREMA Working Paper, No. 2003-08, Center for Research in Economics, Management and the
Arts (CREMA), Basel
This Version is available at:
http://hdl.handle.net/10419/214284
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Center for Research in Economics, Management and the Arts
The Importance of Faith:
Tax Morale and Religiosity
Benno Torgler
Working Paper No. 2003 - 08
CREMA Gellertstrasse 24 CH - 4052 Basel www.crema-research.ch
1
The importance of faith:
Tax morale and religiosity
by
Benno Torgler
*
Georgia State University, USA
Center for Research in Economics, Management and the Arts (CREMA), Switzerland
University of Basel, Switzerland
Abstract
The intention of this paper is to analyze religiosity as a factor that potentially affects tax morale. For
this purpose, a multivariate analysis has been done with data from the World Values Survey 1995-
1997, covering more than thirty countries at the individual level. Several variables, such as church
attendance, religious education, being an active member of a church or a religious organization,
perceived religiosity, religious guidance and trust in the church have been analyzed. The results
suggest that religiosity raises tax morale.
JEL classification: H260, H730, K420
Keywords: Tax morale; Tax compliance; Religiosity
*
Andrew Young School of Policy Studies, Georgia State University, International Studies Program, 35 Broad
Str., suite 605, Atlanta, GA 30303, USA. E-Mails: ecobtx@langate.gsu.edu, benno.torgler@unibas.ch, fax:
0014046513996, phone: 0014046514445. For advice and suggestions thanks are due to Doris Aebi, René L.
Frey, the editor J. Barkley Rosser and two anonymous referees. Financial support from the Swiss National
Science Foundation is gratefully acknowledged. – Revised Version, December 2003.
2
As we see it, economists have avoided the study of religion, and other social scientists have
failed to appreciate religion’s rational/economic characteristics largely because the social
sciences failed to approach religion as they did other phenomena. For many leading scholars,
religion was not so much a phenomenon to be explained as it was an enemy to be overcome.
Stark, Iannaccone and Finke (1996, p. 436)
1. Introduction
Questions about tax compliance are as old as taxes themselves and will remain an area
of discovery as long as taxes exist. There is almost no civilization that did not tax. Six
thousand years ago, tax history started with records on clay cones in Sumer, with the
inscription “There were the tax collectors” (Adams, 1993, p. 2).
However, until now we find quite a few studies analyzing tax compliance, but very
little about tax morale. This survey focuses on tax morale and tax compliance and intends to
outline alternative theories and empirical findings. James Andreoni, Brian Erard and Jonathan
Feinstein (1998) wrote: “adding moral and social dynamics to models of tax compliance is as
yet a largely undeveloped area of research” (p. 852).
Thus, the paper’s aim is to shed more light in the black box of tax morale. It is relevant
to analyze tax morale, as studies in the 90s have shown that the puzzle of tax compliance is
“why so many individuals pay their taxes” and not “why people evade taxes”. It has been
noted that compliance cannot be explained entirely by the level of enforcement (Graetz and
Wilde, 1985; Elffers, 1991). Countries set the levels of audit and penalty
1
so low that most
individuals would evade taxes, if they were rational, because it is unlikely that cheaters will
be caught and penalized. Nevertheless, a high degree of compliance is observed. Thus,
researchers have started to analyze a variety of factors other than detection and punishment.
Tax morale might be an important influencing factor for tax compliance, and is therefore
central to this new research focus. The framework of this paper is novel. There are not many
studies that systematically search for factors that influence tax morale.
1
According to Andreoni, Erard and Feinstein (1998), in 1995 the audit rate in the United States for individual
tax return was 1.7 percent, the civil penalty for underpayment of taxes is calculated as 20 percent of the
underpayment that results from wrongful conduct. However, in some countries, the information return and
matching capabilities of the tax administration imply that the probability of being caught with tax evasion of
wages and salaries is closer to 100% than to 2% (see Slemrod, 2003).
3
The purpose of this study is to analyze religiosity as a potential factor that affects tax
morale, which we define as the intrinsic motivation to pay taxes. Religiosity has been
analyzed using different measurements such as church attendance, religious education, being
an active member of a church or a religious organization, perceived religiosity, religious
guidance and trust in the church, controlling for the specific religion of a person to check also
whether some religions are more tax compliant than others. According to the author’s
knowledge there are only two papers that examine religiosity’s effect on tax cheating (Tittle,
1980; Grasmick et al., 1991). Grasmick et al. (1991) used data collected from the annual
Oklahoma City Survey in spring 1989 with a random sample of 330 adults. In our analysis we
use the World Values Surveys (1995-1997). Compared to Grasmick et al. (1991), e.g., our
analysis has a higher sample size covering more than 30 countries, more measurements of
religiosity and more control variables. As in some countries in our analysis corruption is quite
high, it cannot be assumed that the obligation of paying taxes to the government is an
accepted social norm. Thus, it is relevant to include a measurement of corruption in the
analysis to check the robustness of results. Furthermore, we are going to investigate whether
trustworthiness, such as lying (“claiming government benefits to which someone is not
entitled”), cheating (“avoiding a fare on public transport”) and buy a stolen product (“buying
something you knew was stolen“) also explain tax morale.
As most empirical research on tax compliance has generally been done with U.S. data,
there is a lack of research within countries outside the U.S. Thus, this paper contributes to
expanding the focus, as it includes a great number of countries to get a general idea of the
effect of religiosity on tax morale. The empirical findings indicate that religiosity has a
significant positive effect on tax morale, even if other determinants as corruption,
trustworthiness, demographic and economic factors are controlled for. Before starting with
the empirical part (Section 3), Section 2 introduces into the economics of religiosity and
argues that religiosity works as a constraint on individual behavior.
2. Religiosity as a constraint on individual behavior
2.1. Theoretical considerations
There are many behavioral norms as, for example, moral constraints, which are not
formally laid down, but are crucially influenced by religious motivations. North (1981) uses
