Tax evasion; public and political corruption and international trade: a global perspective

Abstract

PurposeThis study aims to examine the significance of public/political corruption; trade tax revenue (import and export) on tax evasion in a group of 140 countries for the period 2008–2017. Sampled countries were subsequently grouped into four clusters for further testing. With the increase in globalization and technology, there is a potential of increased tax corruption on trade tariffs revenue activities.Design/methodology/approachThe empirical testing was carried out using the technical and more advanced dynamic two-step system-generalized moment method. The econometrical method solves the problem of autocorrelation and heteroskedasticity on cross-sectional data. This study used the data from World Bank, Transparency International, World Economic Forum and Kaufmann’s governance indicators.FindingsThere is statistical interaction between the corruption perception index (CPI) and international trade activities. Moreover, other results revealed that CPI and trade tax revenue activities are statistically insignificant to tax evasion in three groups; low corrupt countries, high corrupt and trade surplus countries although the coefficient signs remain consistent. This can be attributed by a low level of corruption in the low corrupt countries or concealment of corruption-related information in high corrupt countries and the low level of import evasion in trade surplus countries.Originality/valueBased on the theory and results, public and political officials should promote good corporate governance by strictly monitoring trade revenue activities because parties involved can use technical criminality to conceal illegal behavior. Additionally, all jurisdictions should apply the economic theory of crime, especially in high political corrupt countries and perennial trade deficit countries because key macroeconomic tax revenue activities such as imports invite numerous forms of dishonesty.