The Upsides and Downsides of Generalized Trust: The Mediating Effect of Democratic Institutions

Does generalized trust play a role in the public’s tax compliance? Traditional wisdom claims that generalized trust can affect the public’s compliance with paying taxes by reducing concerns about free-riders and facilitating public goods provision. However, there is little empirical evidence of a statistically significant relationship between generalized trust and tax morale in comparative studies. I argue that the dominant role of generalized trust in tax morale depends on the democratic development of institutions. Using the WVS and EVS trend file from 1981 to 2020 (N = 585,368), I find that people who trust others are less willing to pay taxes in less democratic countries. The result is robust to different specifications. These results highlight that to reduce the negative effect of generalized trust on tax morale, governments should improve their political institutions in accountability and inclusiveness.