“Tax Evasion, Informal Payments, Virtue and Hypocrisy”

John E. Anderson, University of Nebraska-Lincoln 

In this paper I investigate the attitudes of people in transition countries regarding tax evasion and requests for informal payments by government officials. Using the EBRD Life in Transition (LITS II) survey data covering residents of thirty transition countries in 2010, I estimate empirical models using OLS, probit, and two-stage selection models of, (1) attitudes of citizens regarding whether it is wrong to engage in tax evasion, specifically by paying cash with no receipts to avoid paying VAT, and (2) attitudes regarding whether it is wrong for government officials to ask for informal payments, specifically asking for a gift or favor in return for service provided. Responses to LITS II survey questions on these topics are empirically modeled using explanatory variables including personal characteristics and community values. In addition, I also construct a measure of virtue or hypocrisy by comparing responses regarding the wrongness of one’s own evasion relative to the wrongness of requests for informal payments by officials. Empirical models are estimated to determine the individual and community characteristics that contribute to virtue and hypocrisy.