Social Identities, Ethnic Diversity, and Tax Morale

This paper investigates the impact of individuals' social identity on their tax attitudes, and how these effects on the micro level are translated to an impact of ethnic heterogeneity on the public's 'overall' tax morale. We find that both racial and national identities play important roles shaping one's tax morale, and their effects depend on the population heterogeneity. Overall, ethnically fractionalized countries have poorer tax morale than homogeneous ones. It implies that the former are more likely to have a higher cost of tax collection, which may restrict funds for their public sector and adversely affect its functionality. This is consistent with the previous findings that suggest detrimental impact of ethnic fractionalization on public sector performance