draining development.pdf - Khazar University

92 Draining Developmentmutual obligation with different levels of government. Central to themoral legitimization of evasion was the extent to which the authoritieswere perceived to be delivering on their responsibilities (zeren), fromwhich people then classified taxes as either reasonable (heli de shui) orunreasonable (buheli de shui) (Ku 2003).The quality of political institutions therefore has a strong observableeffect on tax morale (Torgler et al. 2008; Everest-Phillips 2008a, 2009b).Tax morale, the practical expression of support for national development,as noted above, is particularly significant in developing countrieswith weak governance quality: citizens across the developing worldinvariably justify tax evasion through the belief that they do not get anadequate return for the taxes paid. 48 For instance, the U.K. Departmentfor International Development–World Bank survey in the Republic ofYemen of private sector tax morale found that 91 percent of respondentsfelt that the state had to be seen to be using revenues fairly and efficientlyif tax evasion was to be tackled effectively; 97 percent felt they paid a fairamount of tax; and 100 percent felt that tackling corruption was essential(World Bank 2008b; see also Aljaaidi, Manaf, and Karlinsky 2011).Modern democracies aspire to achieve voluntary tax compliance, thatis, all citizens willingly comply without the state needing to resort to anycompulsion. In reality, all tax systems settle for quasi-voluntary tax compliance,recognizing that the free-riding potential always requires somestate authority to compel. Levi (1989, 69) categorizes quasi-voluntarycompliance as the outcome of “the sanctions, incentives and reciprocitypractices that produce social order and conditional cooperation withoutcentral state- or ruler-imposed coercion.” Yet, the overwhelmingfocus on tackling tax evasion in developing countries is on fiscal policyand administrative capacity constraints, not on the political governancethat makes tax policy and administration effective (Sánchez, O. 2006;Sánchez, J.A. 2008).Policy Implication: Tackle Illicit Capital Flows byStrengthening the Legitimacy of the StateSo, tackling the tax evasion dimension of illicit capital flows requires thatone address the underlying political economy constraints to the long-