This paper examines the effect of perceptions of corruption on voluntary tax compliance in Indonesia by exploring two parallel trust-based mechanisms: trust in government and tax authorities and trust in government spending. Grounded in fiscal exchange theory, this study examines the mediating role of trusts in the relationship between perceptions of corruption and voluntary tax compliance.
A cross-sectional survey of 256 Indonesian taxpayers is analyzed using partial least squares structural equation modeling. The model estimates the direct effect of perceptions of corruption on voluntary tax compliance and tests the parallel mediating roles of trust-based mechanisms: trust in government and tax authorities and trust in government spending.
The findings indicate that perceptions of corruption negatively influence voluntary tax compliance, whereas trust in government and tax authorities as well as trust in government spending positively influence voluntary compliance behavior. The mediation analysis further reveals that both trust dimensions partially mediate the relationship between perceptions of corruption and voluntary tax compliance, suggesting that perceptions of corruption reduce compliance not only directly, but also indirectly through declining public trust.
This study contributes to the social economics literature by distinguishing between trust in government and tax authorities as well as trust in government spending in explaining the relationship between perceptions of corruption and voluntary tax compliance. By extending fiscal exchange theory, the study provides a broader understanding of voluntary tax compliance in an emerging economy context.
