Factors Influencing Tax Compliance in OECD Member Countries: A Panel Data Approach Using GMM

Authors
Ali Mehdizadeh
Yavar Dashtbany
Abstract
Tax compliance is one of the most significant issues in the field of economic management, contributing to financial transparency, economic justice, and the enhancement of government revenue sources. In OECD member countries, tax policies between 1990 and 2022 have been designed to improve tax compliance and strengthen the sustainability of tax revenues. This study examines the determinants of tax compliance in these countries using the Generalized Method of Moments (GMM) for panel data analysis. The results indicate a nonlinear and significant effect of the tax rate and its squared term on tax compliance, suggesting that while a positive relationship exists between the tax rate and compliance up to an optimal threshold, excessive increases in tax rates may reduce compliance. Furthermore, the employment index has a positive and significant effect on tax compliance, highlighting the importance of job creation in expanding the tax base. In contrast, the corruption index has a negative and significant effect on compliance, emphasizing the need to reduce corruption and increase transparency within the tax system. Per capita GDP also exhibits a negative effect on tax compliance, which can be attributed to structural changes in the economy and the fiscal policies of the countries studied. Nevertheless, the ratio of tax revenue to GDP in OECD countries has remained relatively stable and slightly increasing, reflecting the role of reforms and transparency in sustaining their tax systems. The findings of this study can inform the design of effective policies to enhance tax compliance in Iran, including determining optimal tax rates, strengthening employment policies, improving transparency, and reducing corruption within the tax administration.
Keywords
tax compliance
tax rate
Corruption
GDP per capita
Generalized method of moments
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