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With or Against the People? The Impact of a Bottom-Up Approach on Tax Morale and the Shadow Economy

  • Benno Torgler



  • Friedrich Schneider


  • Christoph A. Schaltegger


Policymakers often propose strict enforcement strategies to fight the shadow economy and to increase tax morale. However, there is also a bottom-up approach: decentralizing the political power to those who are close to the problems and give them a direct political say. This paper analyses the impact of direct democracy and local autonomy on tax morale and the size of the shadow economy. We use two different data sets on tax morale at the individual level (World Values Survey and International Social Survey Programme), and macro data of the size of the shadow economy to systematically analyse the effects of institutions in Switzerland, a country where participation rights and the degree of federalism vary across different cantons. The findings suggest that direct democratic rights and local autonomy, have a significantly positive effect on tax morale and the size of the shadow economy.

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Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 211.

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Length: 47
Date of creation: 01 Feb 2007
Date of revision:
Handle: RePEc:qut:dpaper:211
Note: The School of Economics and Finance, Level 8, Z Block, Gardens Point Campus, 2 George Street, Brisbane, QLD 4001, Australia, email: ** Department of Economics, Johannes Kepler University of Linz, A-4040 Linz-Auhof, Austria. E-mail:, *** Swiss Federal Department of Finance, Bundesgasse 3, CH-3003 Berne, Switzerland, University of St. Gallen. E-mail: All are research fellows of CREMA – Center for Research in Economics, Management and the Arts, Switzerland. Financial support from the Swiss National Science Foundation is gratefully acknowledged.
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