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Corporate Tax Compliance Decision in Transition Economies

Seung-Hyun Lee
Professor
University of Texas at Dallas

Abstract : We examine corporate tax compliance decisions in transition economies by conceptualizing the relationship between firms and the government as an exchange. We show that firms facing a lesser probability of detection, experiencing a greater lack of governmental services, and paying more bribes are less likely to comply with tax obligations. However, we also find that even under a high law enforcement level where the probability of detection is high, those firms that bribe more are less likely to comply with tax obligations. Data provided by the World Bank largely support our hypotheses, underlying the importance of understanding the social context within which firm behavior is embedded.