1. Luca Andriani LCCGE Seminar London 9 November 2012
Tax Morale and Pro-Social Behaviour: Evidence from a Palestinian Survey
Luca Andriani
LCCGE Seminar
London 9 November 2012

2. Main Question
What is the impact of pro-social behaviour on tax morale among Palestinians?
Pro-social behaviour = public spirit & associational activity

3. Pro-social behaviour Public Spirit
positive attitude adopted by the citizens for the benefit of the community even though this might incur in personal cost or reduced personal gain (Kelman 1987)
Associational Activity
Individuals engaged in voluntary activities

4. Tax Morale and pro-social behaviour
Tax morale approach (Torgler 2005; Frey and Torgler 2007; Cummings et al 2009)
Tax evasion not only a matter of tax burdens and probability of audit (Andreoni et al 1998; Torgler 2005) but also a matter of social norms internalised by a community.
Some individuals/communities might be more respectful of social norms than others
Tax morale = intrinsic motivation for an individual to pay taxes beyond the probabilistic approach. Individuals are against tax evasion because it is morally unacceptable.

5. Tax Morale and pro-social behaviour
Literature so far:
Cross country empirical analysis (Torgler 2005, Lago-Penas et al 2010; Frey and Torgler 2007). Tax evasion is lower in countries with higher tax morale
Micro-level but high income countries (Cannary et al 2007, Alm and Gomez 2008; Barone and Mocetti 2009)
Why the existing gap with developing countries?
Tax morale is a relatively new topic of research (easier to focus on cross-country analysis given the data availability)
Lack of surveys in developing countries covering opinions about tax evasion

6. Why Palestinian Territories?
Palestinian Territories & tax morale: a pioneer research
Due to the lack of independent Palestinian state the WBGS are affected by a combination of weak formal institutions and strong informal institutions. Hence a system of community governance that goes beyond the simple associational life. The role of pro-social behaviour might be even more intensive than in other contexts.
Attitude of the citizens towards tax compliance is central in a context of state-capacity building and it can provide useful insights on the shaping of the state-society relation
Associational life is affected by vertical linkages with the Palestinian Authority for the seeking of more governmental support (Jamal 2007). This can undermine the delivery of the sense of civic engagement to extent of reducing the importance of tax compliance.

7. Palestinian Territories

8. Methodology: Bivariate Probit Model

9. Methodology: Bivariate Probit Model
Estimation opportunities
Estimate the marginal effect of the change of an observable characteristic (ex. trust in institutions) on the joint probability of an individual to be tax moral and her self-reported pro-social attitude
Estimate the predicted conditional probabilities. i.e. Estimate how the propensity for an individual to be tax moral changes in the presence of pro-social behaviour compared to the case when pro-social behaviour is absent
Ex. we can estimate how much higher (or lower) the probability of a Palestinian to be against tax evasion is when she is engaged in associational activities compared to when she is not engaged in associational activities
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10. Dependent variables of tax morale and pro-social behaviour

11. Variables
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12. Bivariate Probit Baseline
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13. Marg. Eff. joint probabilities of tax mor. and pro-soc. behaviour
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14. Marginal effects on joint probabilities of tax morale and pro-social behaviour
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15. Marginal effects on joint probabilities of tax morale and pro-social behaviour

16. Marginal effects on joint probabilities of tax morale and pro-social behaviour
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17. Predicted odds ratios for employed and unemployed

18. Predicted odds ratios for public sector and self-employed

19. Robustness 1: Volunteers, Membership and Putnam Groups

20. Robustness 2: Alternative measures of public spirit
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21. Robustness 3: tax morale public spirit and Institutional Trust
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22. Robustness 4: tax morale associational activity and Institutional Trust
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23. Conclusions
Tax morale is lower when Palestinians are involved in associational activities. This occurs even when we consider Putnam-group organisations
Tax morale increases with public spirit
Public spirit has more impact when there is a lack of confidence in the institutions and in the rule of law.
Interestingly, more public spirit is required for a self-employee in order to deal with tax compliance than for a worker in the public sector, regardless the level of confidence and trust in the institution

24. Conclusions
Even though the lack of independence, trust in institutions and importance of the rule of law play a crucial role. Hence consistent process of institutional transparency might be recommended.
The use of bribe is one of the elements of the public spirit
In the robust analysis we replicate the bivariate probit models by including democratic spirit as in Torgler (2005) and Lago-Penas et al (2010). Same results!

25. Limitations
No data on tax compliance and the size of the Palestinian shadow economy (it would interesting to compare tax morale with tax compliance and trust in institutions with shadow economy. We could set interesting estimate and possible forecasting measures!)
This paper is mainly concern with the Palestinian context. Cautious in generalisations. Nevertheless there are some similarities with findings in cross-country analysis and micro-level analysis
Our analysis is not able to estimate a possible average level of tax evasion. The survey does not permit to produce any type of estimation in this sense.
However, this work shed light on the attitude of citizens toward tax compliance especially in the view of a more consistent process of state-capacity building.
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26. Thank you!!

27. Predicted odds ratios for employed and unemployed

28. Predicted odds ratios for employed and unemployed

29. Public spirit and associational activity under the baseline model

30. Marginal effects on joint probabilities (public spirit =0 and association = 1)

31. Unconditional joint probabilities between tax morale and public spirit

32. Structure Relationship between tax morale and pro-social behaviour
Tax system in West Bank and Gaza Strip
Methodology & empirical model
Data and variables
Empirical results & discussion
Conclusion

33. Correlation between tax morale and pro-social behaviour

34. Unconditional joint probabilities between civic engagement and working sectors

35. Unconditional probabilities between civic engagement and association

36. Ranking of the institutions according to trust

37. Ranking of the institutions according to trust (respondents that are politically active)

38. Tax system in WBGS
Even though WBGS are regulated by a single tax system, the Palestinian fiscal policy faces major constraints
The political uncertainty of the Palestinians’ Territories favours the building of personal and patrimonial linkages in order to assure political and personal loyalties between the institutional authority and some influential taxpayers (Fjeldstad et al 2002).
Negotiations were used to solve dispute on tax assessment especially until 2000 in order to receive discounts of exempts
Social obligations and political intervention affected the work and the integrity of the tax officers (Fjeldstad et al 2002). This situation undermines the citizens’ perception of good governance and their opinion about the regulatory capacity of the authority (Fisher et al 2001)

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