Assessing the Impact of Public Sector Policies on Tax Evasion in Iran and Selected Countries

Governments need financial resources to play their role in the economy and to produce and supply public goods. One of the most efficient sources of finance in the public sector economy is taxation. Taxes are doubly important in developing countries, which are always short of physical and economic infrastructure. However, government revenue sources or the share of taxes in total public revenues vary from country to country, depending on their level of development and economic structure. But tax evasion is seen as a sharp drop in government revenue that discourages the government from providing current public services due to a reduction in government revenue from public revenue.Tax evasion refers to any illegal attempt to evade taxes. Numerous factors affect tax evasion. One of the most important factors is public sector policies. Therefore, in this study, using the data panel regression method, the effect of public sector policies on tax evasion in Iran and selected emerging countries in the period 2000-2020 has been studied.Governments need financial resources to play their role in the economy and to produce and supply public goods.Governments need financial resources to play their role in the economy and in the production and supply of public goods. One of the most efficient sources of finance in the public sector economy is taxation. one of the most effective sources of finance in a public sector economy is taxation. 

In this study, the effect of public sector policies on tax evasion in Iran and in selected emerging countries in the period 2000 to 2020 has been studied. The conceptual model of the research is as follows, in which tax evasion depends on variables related to government (rule of law, open markets, size of government and quality of legislation), tax modi (religious beliefs) and tax organization (public sector governance). Thus, in this study, the regression model of research has been used by modifying the model of Islam et al (2020) and considering the effect of the degree of development of countries on tax evasion. Unemployment, per capita income and government expenditure based on the study of Rezagholizadeh et al (2019) and value added of the agricultural sector based on the study of Ziyatbar Ahmadi and Karimi Petanlar (2019) are included in the research model. Also, the effect of property rights, the quality of public sector governance and the variable of religion based on the research of Islam et al (2020) were considered as explanatory variables in the model. To estimate the model, the dynamic data panel method is used and first the research regression model is proposed and then how to measure its variables is presented. In the following, the data related to the model are extracted from the new Rahavard software and the desired model is estimated using Eviews 9.0 software. Before estimating the model, the static variables of the model are checked using unit root tests. Because if the model variables are anonymous, the estimated regressions are fake and have lower reliability. If the data were consistent, there would be no problem in the model estimation process. But if the data are anonymous, the aggregation between the model variables should be examined to study the existence or absence of an equilibrium and long-term relationship between the model variables.

The results of model estimation show that the effect of property rights on tax evasion is negative and significant and the guarantee of personal property by the government has reduced the rate of tax evasion. In addition, the rule of law has a significant negative impact on tax evasion. Because the rule of law is high, it increases people's confidence in the strict implementation of laws, especially tax laws, and reduces the possibility of tax evasion. Per capita income has a positive and significant effect on tax evasion. Because with the increase in income, since the tax system in most countries is exponential, the amount of taxes paid by individuals will increase and their motivation for tax evasion will be higher. The effect of government spending on tax evasion is positive, but it is not statistically significant at the 5% level. In addition, at a significance level of 5%, the religion variable has a significant negative effect on fiscal taxation. In other words, the high Muslim population compared to the total population of a country, due to the illegality and illegality of tax evasion in Islam, has a negative impact on tax evasion in that country. Unemployment rate is another variable that has a positive effect on tax evasion and this effect has been statistically significant at a significance level of 5%. Because high unemployment reduces income and their willingness to pay taxes. The quality of public sector governance (rule of law) also has a negative and significant effect on tax evasion. Because the high rule of law gives economic agents the assurance that the laws enacted in the country (including tax laws) are properly implemented and in case of violation (including tax evasion of the economic agent), he will be fined. The variable of economic freedom also has a negative and significant effect on the rate of tax evasion. For example, a high level of monetary freedom (low level of inflation) has a significant negative effect on the tax rate.

High property rights and the rule of law in the period 2000-2020 have reduced tax evasion in the studied countries. Property rights and the rule of law as two effective tools in public sector governance have a negative impact on tax evasion. More monetary freedom and freedom of investment as the two basic pillars of economic freedom, means low levels of inflation and ease of capital inflow into the country and has a negative impact on tax evasion. People in developed countries have less incentive to evade taxes for fear of punishment or for using quality health, education and public transport services. These results confirm the findings of Sameti et al (2021) and Blory et al (2021). Therefore, the government should improve the business environment in the economy and reduce the possibility of tax evasion by strengthening institutions, increasing the rule of law and imposing appropriate penalties for violating the law, defining and guaranteeing property rights and respecting private property. In addition, due to the positive impact of inflation and unemployment on tax evasion, the government and monetary institution by implementing active monetary and fiscal policies, increase production and economic growth (reduce unemployment) and control inflation. Property rights and the rule of law as two effective tools in public sector governance have a negative impact on tax evasion. Property rights and the rule of law as two effective tools in governing the public sector have a negative impact on tax evasion. More monetary freedom and freedom of investment as the two basic pillars of economic freedom, means low levels of inflation and ease of capital inflow into the country and has a negative impact on tax evasion. More monetary freedom and freedom of investment as the two basic pillars of economic freedom, means low inflation and ease of capital inflow into the country and has a negative impact on tax evasion. These results confirm the findings of Sameti et al. (2021) and Blory et al. (2021). These results confirm the findings of the study of Sameti et al. (2021) and Blori et al. (2021). Therefore, the government should improve the business environment in the economy and reduce the possibility of tax evasion by strengthening institutions, increasing the rule of law and imposing appropriate penalties for violating the law, defining and guaranteeing property rights and respecting private property.Therefore, the government should improve the business environment in the economy and reduce the possibility of tax evasion by strengthening institutions, increasing the rule of law and imposing appropriate sanctions in accordance with the law, defining and guaranteeing property rights and respecting private property. Property rights and the rule of law as two effective tools in public sector governance have a negative impact on tax evasion. Property rights and the rule of law as two effective tools in governing the public sector have a negative impact on tax evasion.Therefore, the government should improve the business environment in the economy and reduce the possibility of tax evasion by strengthening institutions, increasing the rule of law and imposing appropriate penalties for violating the law, defining and guaranteeing property rights and respecting private property. Therefore, the government should improve the business environment in the economy and reduce the possibility of tax evasion by strengthening institutions, increasing the rule of law and imposing appropriate sanctions in accordance with the law, defining and guaranteeing property rights and respecting private property.