Tax evasion and governance quality: The moderating role of adopting open government
| Published date | 01 March 2024 |
| DOI | http://doi.org/10.1177/00208523231197317 |
| Author | Odkhuu Khaltar |
| Date | 01 March 2024 |
Tax evasion and
governance quality: The
moderating role of
adopting open government
Odkhuu Khaltar
Yonsei University, Republic ofKorea
Abstract
One of the reasons why many developing countries struggle to provide basic public ser-
vices to citizens is a lack of taxrevenue owing to corruption and illicit financial outflow
transfers. Trade misinvoicing is one of the main channels taxpayers use to evade taxes
and transfer money abroad, particularly in developing countries. Although scholars
have been cognizant of the gravity of corruption, little empirical evidence exists on
tax evasion through trade, which is mostly related tothe declineoftax revenues in
developing countries. To bridge this research gap, this study examines the impact of gov-
ernance quality and adoption of the Open Government Partnership on trade-related tax
evasion in developing countries. Governance quality and open government initiatives are
expected to reduce tax evasion by increasing moral cost and transparency, improving
the legitimacy of tax burden and tax expenditure.The results showthat government
effectiveness, regulatory quality, control of corruption, and adoption of open govern-
ment contribute to combating trade-related tax evasion. Moreover, the government’s
adoption of an open government moderates the association between governance quality
(regulatory quality) and trade-related tax evasion; thatis, governance quality significantly
impacts reducing tax evasion in countries where opengovernment initiatives are more
prevalent. This study holds several implications for leveraging the nationwide adoption of
open government, which may directly and indirectly help governments reduce trade-
related tax fraud and improve tax revenue.
Corresponding author:
Odkhuu Khaltar, Yonsei University, 50 Yonsei-ro Seodaemun-gu, Seoul, 03722, Republic of Korea.
Email: odkhuukh@yonsei.ac.kr
Article
International
Review of
Administrative
Sciences
International Review of Administrative
Sciences
2024, Vol. 90(1) 276–294
© The Author(s) 2023
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/00208523231197317
journals.sagepub.com/home/ras
Points for practitioners
Governance quality and the adoption of open government initiatives effectively reduce
trade-related tax evasion.
The impact of governance quality onreducing tax evasion can be enforced by adopting
open government partnership.
Keywords
developing countries, governance quality, open government partnership, tax evasion
Introduction
A high level of tax evasion associated with trade can threaten the domestic resource
mobilization of a government by reducing the tax base, free trade and investment, and
economic growth, and increasing bribery among government officials (Baker, 2005;
GFI, 2020). Tax evasion poses a significant development challenge, especially in devel-
oping countries, where domestic revenue mobilization is critical for delivering essential
public services (Addison et al., 2018; Alstadsæter et al., 2019; Kar and Cartwright-Smith,
2010). Furthermore, trade-related tax evasion harms government institutions (Lin, 2018;
OECD, 2014) by diverting funds from public spending and undermining trust in govern-
ment. Specifically, trade misinvoicing accounts for a substantial share of measurable tax
evasion based on trade, amounting to 60% of the total illicit financial flows. According to
the 2018 estimates produced by the Global Financial Integrity (GFI) research institute, the
trade-related illicit financial flows from developing countries and to all global partners
were estimated to be 1.6 trillion USD, likely accounting for 20.14% of total trade
(GFI, 2021). However, although trade-related tax evasion is attracting the attention of
governments and international development agencies, there exists little evidence or
understanding of the means and factors that can effectively regulate such activities
(Thiao, 2021).
In addition to a general need for research on trade-related tax evasion, some research-
ers highlighted the necessity to improve governance quality (Psychoyios et al., 2021) and
modernize public services by adopting e-government and open government initiatives
(Nimer et al., 2022a; Uyar et al., 2021). The argument also cites evidence that tax
evasion is likely to be easier in low-income countries than in high-income countries,
where regulatory capacity and the adoption of digital government are high and the risk
of being caught is almost certainly greater (Pomeranz and Vila-Belda, 2019). This sug-
gests that countries with high institutional capacity and benefits from open government
initiatives place numerous regulations on tax disclosure and transfer pricing (Brandt,
2022), and the effect of such regulatory policy is likely to be enforced by the administra-
tive benefit of open government, which increases moral cost and transparency by allow-
ing access to quality information, enabling the tracking of tax evasion activities and
reducing administrative cost. Moreover, the institutional approach argues that institu-
tional quality and open government initiatives increase tax revenue and compliance by
Khaltar 277
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