Tax evasion and religiosity in the Muslim world: the significance of Shariah regulation

Abstract

This paper uses a socio-economic theoretical framework and data from the shadow economy (1999–2007) to examine tax evasion and religiosity in 38 Muslim-majority countries (i.e. countries in which more than 50% of the population is Muslim) across the globe. The study finds that Shariah regulation and high inflation (representing a lack of monetary freedom) are negatively correlated with tax evasion (i.e. they are correlated with less tax evasion). In line with the literature, the findings also suggest that high corporate tax (less fiscal freedom) and a lack of legal enforcement lead to tax evasion. Interestingly, no relationship was found between corruption or quality of public sector governance and tax evasion in the Muslim world. This is the first study to examine tax evasion practices in the Muslim world. The results of the study have implications for the development of an international tax framework, and for future research and policy in general.