Trust in Government and Tax Compliance: An Empirical Evidence from Ghana

Abstract

Governments all over the world, specifically, Sub-Saharan African countries aim to attain economic growth and sustainable development. Economic growth is often financed with tax revenue. However, governments are not able to mobilize adequate tax revenue as a result of tax non-compliance. Previous research on tax compliance found that both economic and non-economic factors influence tax payment propensity. In recent times, studies focus on non-economic factors because they offer a better explanation of tax non-compliance than the pure economic factors. This study draws data from the Afrobarometer Round 6 survey to investigate the effect of trust in government on tax payment propensity in Ghana. To achieve this objective, the study first computes a trust in government index based on Rothstein (2005) and Rothstein and Teorell (2008) input-output criterion. Secondly, it examines the effect of trust in government on tax compliance using a binary probit model. The findings of this study show that trust in government significantly and positively influences the probability of tax compliance. This suggests that taxpayers who trust in the government are more likely to pay taxes than taxpayers who do not trust in the government. As regards the locality disaggregated estimations of the effect of trust in government on tax compliance, it indicates that the significant positive effect of trust in government on tax payment propensity seems to be the case for only urban taxpayers, whereas, the rural taxpayer’s tax payment propensity is not dependent on their trust in government. Furthermore, other covariates such as high level of education, being employed with the government, low level of corruption and having a sense of safety, significantly influence the probability of tax compliance. Based on the findings of this study, it is recommended that the government must perform efficiently in providing adequate public goods and services, controlling the level of corruption and improve upon the safety of citizens. This will cause taxpayers to have trust in government and consequently pay their taxes.