Trust in Public Finance / Joel Slemrod.

Format:

Book

Author/Creator:

Slemrod, Joel.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9187.

NBER working paper series no. w9187

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

Using data on trust and trustworthiness from the 1990 wave of the World Values Survey, I first investigate a model of the extent of tax cheating and the size of government that recognizes the interdependence of the two. The results reveal that tax cheating is lower in countries that exhibit more (not-government-related) trustworthiness. However, holding that constant, tax cheating becomes more acceptable as government grows. All in all, there is some weak evidence that the strong positive cross-country correlation between the size of government and tax cheating masks the fact that big government induces tax cheating while, at the same time, tax cheating constrains big government. I then add to the structural model an equation determining the level of prosperity, allowing prosperity to depend, inter alia, on the level of government and on trust in others. I find some evidence that both prosperity and government involvement are higher in more trusting societies. Moreover, holding these measures of trust constant, the association of government size with prosperity is positive until a level of government spending somewhere between 31% and 38% of GDP, after which its marginal effect is negative. Thus, although a trusting citizenry allows larger government, the tax burden this entails erodes the rule obedience taxpayers exhibit toward government.

Notes:

Print version record

September 2002.