Analyzing the effects of corruption and quality of governance on tax system performance: A dynamic panel data approach

According to the new thought stream of public services, good governance and reduced corruption among official institutions as part of the performance of institutions play essential roles in improving the performance of the tax system. Thus, improvement in the quality of governance and control of state corruption result in public confidence, less tax evasion, higher tax revenues and improving economic performance. Using dynamic panel data, we analyze the impact of good governance index and corruption perception index on the performance of the tax system in the selected countries over the period 2002-2014. For this purpose, we investigate the effects of good governance index, its six subcomponents and corruption perception index on the performance of the tax system. Results indicate positive relationships among good governance indicator and its subcomponents, and the ratio of tax revenues to GDP. In addition, increases in corruption perception index raise the ratio of tax revenues to GDP. Our findings indicate positive and significant effects of per capita GDP and trade openness on the ratio of tax revenues to GDP.