Purpose
The purpose of this paper is to explore the relationship between public governance quality and tax compliance behavior in developing countries in terms of what transpires between governments and citizens, leading the later to pay or to abstain from paying tax. The study argues that socioeconomic condition is a mediator in the relationship and explains how and why it is so.
Design/methodology/approach
This study adopts the conceptual approach and connects the concepts through synthesis of literature and previous research findings.
Findings
The study concludes that socioeconomic condition mediates the relationship between public governance quality and tax compliance behavior in developing countries. Socioeconomic conditions appear to be a broader, clearer and more practical concept for measurement purpose than public goods/spending as currently understood in the literature.
Research limitations/implications
The study is a conceptual effort, and there may a be need to undertake further empirical investigations. Developing countries vary in their socioeconomic conditions, and there is a need to acknowledge country-specific circumstances.
Practical implications
The implication of the finding includes the need for further research on the concept of socioeconomic condition, and how and why it influences tax compliance behavior in developing countries. Stakeholders and governments should monitor the impact of policies and actions on the socioeconomic condition of citizens to ensure they are satisfied. Their dissatisfaction leads to the boycott of the tax system which adversely affects economic development.
Originality/value
This study makes an original contribution by exploring socioeconomic conditions as a mediator between public governance quality and tax compliance behavior in developing countries. It is a significant contribution that is capable of shifting the direction of tax compliance research in developing countries due to its practical realities.
Contemporary societies are bound in a fiscal social contract between citizens and their elected governments who administer the states in the interest of all members. The fiscal social contract implies that citizens should pay tax which is utilized by government to execute programs for the collective good. While the advanced countries have done a better job of mobilizing tax as a resource for societal development, developing countries have performed poorly. A large number of high-income earners in developing countries avoid the tax system thus hampering development efforts. Previous studies have alluded to a culture of tax evasion among citizens of developing countries as a key factor influencing noncompliance. However, this study argues that these studies did not reach the best conclusion as their methodology excluded the taxpayers' narratives. We interviewed self-employed taxpayers in Nigeria's capital city, Abuja. Results of the analysis revealed taxpayers' frustration with an opaque tax system, deplorable socioeconomic condition, and nonfunctioning of the tax audit system. We argue that the massive tax noncompliance in developing countries may be better understood as "tax boycott" arising from taxpayers' frustration with the fiscal social contract of governance. Policy implications of the findings were discussed in the concluding section.
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