Does corruption cause tax evasion? Evidence from an emerging economy

Abstract

PurposeThe purpose of this study is to examine the corruption-tax evasion nexus and to establish the strength of relationships among corrupting activities.Design/methodology/approachThe research applied structural equation modelling on selected data from the World Economic Forum Executive Opinion Survey on corruption activities and data on tax evasion triggering factors from the World Development Indicators and the Bank of Ghana to test two hypotheses.FindingsThe test of the first hypothesis suggests that corrupting activities significantly cause tax-evading activities in Ghana; hence, there is at least one corrupting activity triggering tax evasion. Testing the second hypothesis revealed that corruption in Ghana exhibits all of the five dimensions of corruption that were examined. Hence, there is correlation among the corrupting activities.Research limitations/implicationsThe research is limited by the availability of data; hence, only data for selected variables for the period were examined.Practical implicationsThe results are indicative that most emerging economies tend to have more than one type of dominating corruption dimension, which are tax-evading triggers.Originality/valueThe study extends the literature by examining the various dimensions of corruption, analysing the strength of their relationships and how they impact tax evasion in an emerging economy. By identifying and employing specific corrupting activities, there is a better understanding and appreciation of the corruption-tax evasion nexus in the revenue generation process. This may aid emerging economies in the drafting of tax evasion and corruption reduction policies/programmes to ensure the achievement of sustainable development goals.