Cultural Repercussions: Extending Our Knowledge about How Values of Trust and Confidence Influence Tax Structures within Europe
Within a unified Europe that is heading towards ever more harmonization, it is interesting to examine why there exists such diversity in tax regimes among its countries. Is it possible that some of the decisions pertaining to taxation are based on latent cultural aspects? This study, set in a purely European context, seeks to analyze tax variations within Europe through the lens of cultural variations. Specifically, how trust, confidence and equality matter with regard to tax revenues and tax progressivity. Within this regard, we achieved strong results linking trust and confidence to higher tax revenues and higher tax progressivity. That is, where trust among societal members is low and confidence in public institutions is low, regimes opt for low tax revenues and lenient tax rates. It is argued that where mistrust is high, the issue of income distribution between societal members is likely to stay within the private or individual sphere. Conversely, countries with high trust among societal members exhibit higher levels of income distribution by delegating more responsibility to public institutions, reflected in higher tax revenues and more progressive tax structures.
Volume (Year): 1 (2012)
Issue (Month): 1 ()
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"Does Culture Affect Economic Outcomes?,"
NBER Working Papers
11999, National Bureau of Economic Research, Inc.
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