Simplicity Tax Value In the context of simplicity, a fundamental principle of taxation is that people can simply understand the

basis upon which they are being taxed. Simplicity in an important feature of tax systems (Musgrave and Musgrave 1984, 225). When tax legislation and regulations are complex, accountants and lawyers seek loopholes, encourage the appearance of unfairness, and increase tax compliance costs (Sandford 2000, 40). People understand that, with simple taxes, other people are also paying their fair share. This enhances the legitimacy of tax systems and can improve compliance with them (Jackson and Milliron 1986, 127 129). The simplicity tax value manifests itself in tax systems by the way in which taxes are measured, which is encapsulated in the expression of tax laws. When tax systems are simple, tax laws are clearer and better structured, and tax compliance costs tend to be lower (Sandford 2000, 40). In terms of Hofstedes (1980) cultural dimensions, it is possible that individualism, power distance, and uncertainty avoidance are related to tax simplicity. In high individualism countries, the same value standards should apply to all people: universalism (Hofstede 1980,235). This means that rules and procedures are applied uniformly (Trompenaars and Hampden-Turner 1998, 44). Hence, the tax systems in such countries are likely to be simple because tax laws should consistently, leading to less complicated tax legislation. Conversely, in low individualism countries, value standards differ for ingroups and out-groups: particularism (Hofstede 1980, 235). This implies that flexibility in rules and procedures is encouraged to adjust to particular circumstances (Trompenaars and Hampden-Turner 1998, 44). Hence, the tax systems in such countries are likely to be complex because tax laws should be flexible and adjust to specific situations, leading to more complicated tax legislation. In high power-distance countries, significant emphasis is placed on maintaining order in society, a factor in favor of uniformity (Perera 1989, 54). Moreover, the imposition of laws and codes of a uniform character are expected to be accepted by people in high power distance societies (Gray 1988, 10). Hence, the tax systems in such countries are likely to be simple because of the need for uniformity in tax and codes. By contrast, in low power-distance countries, less importance is placed on maintaining order in society, which also should be a factor in support of flexibilty (Perera 1989, 54). In addition, the imposition of laws and codes of a flexible nature is expected to be recognized by people in low powerdistance societies (Gray 1988, 10). Hence, the tax systems in such countries are likely to be complex because of the need for flexibility in tax laws and codes. In high uncertainty-avoidance countries, there is low tolerance for uncertainty and ambiguity. This crates rule-orientated societies in which there are many written laws and regulations Hofstede 1980, 184;Perera 1989, 51 52).hence, the tax systems in such countries are likely to be complex because uncertainty and ambiguity are reduced by means of many written tax laws and regulations. Alternatively, in low uncertainty avoidance countries, there is less concern about uncertainty and ambiguity. In fact, there are as few written laws and regulations as possible (Hofstede 1980, 184; Perera 1989 51 52). Hence, the tax systems in such countries are likely to be simple because there is not as much need for many written tax laws and regulations.

Neutrality Tax Value Tax neutrality is another basic attribute of tax systems (Musgrave and Musgrave 1984, 225). It refers to the effects (or their absence) that tax systems have on economic decisions. This concept argues that tax systems should not impose any special barries (i.e., high tax rate) or provide any special advantages (i.e., tax incentives) to people when they are deciding to use their resources in a particula way. Instead, tax systems should be neutral among all consumers of resources avaliable (Peter 1991, 51). The neutrality tax value manifests itself in tax systems by their levels of efficiency. To the extent that tax systems are neutral, it is less likely that tax rates or incentives distort economic decisions; thus, more efficient tax systems should develop. In terms of Hofstedes (1980) cultural dimensions, it is possible that individualism, power distance, uncertainty avoidance, and masculinity are related to tax neutrality. In high individualism countries, people are supposed to take care of themselves (Hofstede 1980, 235). Individual interests also prevail over collective interests, and the role of government in the economy is restrained (Hofstede 1991, 73). Hence, neutral tax systems are likely to develop in such countries because of the need for independence, the maintenance of individual interests, and a noninterventionist role for government in tax systems. Conversely, in low individualism countries, people have a requirement for order and security (Hofstede 1980, 235). Collective interests also prevail over individual interest, and government has a dominant role to play in the economy (Hofstede 1991, 73). Hence, less neutral tax systems are likely to develop in such countries because of the need for order, the maintenance of collective interests, and an interventionist role for government in tax systems. In high power-distance countries, powerful people are entitled to privileges (Hofstede 1980, 122). Moreover, large income differentials in society are increased further by tax systems (Hofstede 1991, 43). Hence, the tax systems in such countries are likely to be less neutral because powerful people protect their privileges by enacting tax legislation that includes tax incentives to ensure that income differentials in society are increased. By contrast, in low power-distance countries, all people should have equal rights (Hofstede 1980, 122). In addition, any small income differentials in society are reduces further by tax systems (Hofstede 1991, 43). Hence, the tax systems in such countries are likely to be neutral because powerful people have no immediate privileges: all people are treated equally, and tax systems are not used as tools to support large income differentials. This is consistent with minimal tax legislation dealing with tax incentives. In high uncertainty avoidance countries, there is more worry about the future, and people display a high degree of anxiety and stress (Hofstede 1980, 176). There also is more government intervention in the economy to safeguard the public interest (Perera 1989, 54; Hofstede 2001, 180). Hence, the tax systems in such countries are likely to be less neutral because of the need for government intervention in the economy through tax systems. Alternatively, in low uncertainty-avoidance countries, there is greater readiness to live by the day, and people exhibit a low degree of anxiety and stress (Hofstede 1980, 176). There is less need for government intervention in the economy (Perera 1989, 54; Hofstede 2001, 180). Hence, the tax systems in such countries are likely to be neutral because there is less need for government intervention in the economy by way of tax systems. In high masculinity countries, economis growth is seen as a more important problem than conservation of the environment (Hofstede 1980, 296). Moreover, such countries have a corrective approach to society (Hofstede 1991, 103). Hence, the tax systems in such countries are likely to be less neutral because they are used as a means to maintain economis growth through the provision of tax incentives and adjusted tax rates, and they are used as tools to correct market imperfections. Conversely, in low masculinity countries, economic growth is given less priority in comparison with conservation of the environment (Hofstede 1980, 296). In addition, such countries have a permissive approach to society (Hofstede 1991, 103). Hence the tax systems in such countries are likely to be neutral because they are not used for the purpose of maintaining economic growth or as tools for correcting market imperfections. Rather, tax systems allow the market to decide on the most productive utilization of resources. Visibility Tax Value

Tax visibility is a fundamental feature of tax systems (Stiglitz 1988, 390; Peters 1991, 55). It refers to the notion that people should be aware that a tax exits and how and when it is imposed upon them and others. However, a government must finance its outlays even as it pursues the goal of retaining public office for as long as possible. The government might highlight specific benefits to voters, but it will attempt to impose taxes in such a way to antagonize the least number of voters possible (Hansen 1983, 46). Taxation is negative in the publics mind, so a government hides tax decisions to disguise the true size and incidence of the tax burden. Wilensky (1976, 44) finds that highly visible taxes such as personal income taxes motivate strong tax revolts, while less visible taxes such as retail sales taxes are more acceptable. The visibility tax value manifests itself in tax systems by the level of disclosure of different taxes to the public. To the extent that tax systems are visible, it is more likely that all taxes will be disclosed effectively to the public. In terms of Hofstedes (1980) cultural dimensions, it is possible that individualism, power distance, uncertainty avoidance, and masculinity are related to tax visibility. In high individualism countries, everyone has the right to hold opinions (Hofstede 1980, 235), freedom of the press is prevalent (Hofstede 1980, 238), and political power is exercise by voters, transparent, and publicly accountable because of the need for an open environment. Conversely, in low individualism countries, opinions are predetermined by the group (Hofstede 1980, 235), there is less press freedom (Hofstede 1980,238), and political power is exercised by interest groups (Hofstede 1991, 73). Hence, the tax systems in such countries are more likely to lack visibility and transparency, and are not publicy accountable due to the need for a closed environment. In high power-distance countries, powerful people such as politicians attempt to look as impressive as possible (Hofstede 1991, 43), and information is constrained by the hierarchy (Hofstede 2001, 108). Hence, the tax systems in such countries are likely to be less visible so that politicians can impose substantial taxes on an unsuspecting public without fear of voter backlash. Alternatively, in low power-distance countries, powerful people such as politicians attempt to look less infuential (Hofstede 1991, 43), and there is openness with information (Hofstede 2001, 108). Hence, the tax systems of such countries are likely to be visible and transparent to the public. In high uncertainty-avoidance countries, conflict and competition generate aggression and should be avoided. Moreover, people have concerns for security in life (Hofstede 1980, 184). Consequently, there is a need in high uncertainty-avoidance countries to restrict information disclosure to avoid conflict and competition and to preserve security (Gray 1988,11). Hence, the tax systems in such countries are likely to be less visible, with minimal disclosure of tax laws and regulations to help people deal with conflict, aggression, and security. By contrast, in low uncertainty-avoidance countries, conflict and competition can be contained on the level of fair play and used constructively. In addition, people are more willing to take risks (Hofstede 1980, 184). Accordingly, there is less need to restrict information disclosure to prevent conflict and competition, and to preserve security (Gray 1988, 11). Hence, the tax systems in such countries are likely to be visible, with greater disclosure of tax laws and regulations to the public. In high masculinity countries, performance and growth are considered important, and there is a money-and-things orientation. Moreover, there is sympathy for the successful achiever (Hofstede 1980, 294). Therefore, such countries will tend to be more closed, particularly in terms of socially related information (Gray 1988,11). Hence, the tax systems in such countries are less likely to be visible, with negligible disclosure of tax laws to the public. Conversely, in low masculinity countries, quality of life and environment are considered important, and there is a people orientation. In addition, there is symphaty for the unfortunate (Hofstede 1980,294). Accordingly, such countries will tend to be more open especially with regard to socially-related information (Gray 1988, 11). Hence the tax systems in such countries are more likely to be visible, with greater disclosure of tax laws to the public.

Dependent Variables the dependent variables are represented by the tax values. The equity tax value (ETV) is a preference for tax systems that are fair and equitable with respect to the distribution of the tax burden among people, and are based on their ability to pay. Horizontal equity and vertical equity represent the dimensions of ability to pay. However, the literature considers vertical equity as the rpimary dimensions of ability to pay (Kaplow 1989, 139). While horizontal equity requires that the income tax base be as board as possible (Ishi 1993,100), it provides no clear guidance for assigning tax burdens to people (Marlow 1995, 424). Moreover, researchers have not been able to measure horizontal equity in terms of its traditional definition (Kaplow 1989, 141). In contrast, vertical equity can be measured accurately based on progressive taxation (Ishi 1993, 101;Sandford 2000, 22). A distributional tax progressivity index can be computed that measures the effect of the tax system on the distribution of income. The numerical value is a function of the tax structure and the distribution of income (Kiefer 1984, 497). Specifically, if T = t(y) is the tax function, where y -= income, and T = the tax imposed on income y, and if f(y) is the probability density function of the distribuiton of income, then a distributional tax progressivity index, Pd, can be represented as: Musgrave and Thin (1948) provide a distributional tax-progressivity index that they identify as effective progression (EP). The measure is based on the Gini coefficient and is denoted as :

Where Ga is the Gini index for after-tax income and Gb is the Gini index for before-tax income. The index shows the proportionate change in the equality (1 inequality) of the income distribution between before-tax and after-tax income as measured by the Gini index. According to this measure, if EP > 1, the tax is progressive; if EP = 1, the tax is proportional; and if EP < 1, the tax is regressive. Hence, ETV is operationalized in terms of a country measure of effective progression based on Musgrave and Thin (1948). Country Gini coefficient data were collected from Deininger and Squires (1996) high quality data set prepared for the World Bank. To reduce the risk of measurement error, the Gini coefficients are averaged over 1971 1990 period. The simplicity tax value (STV) is a preference for uncomplicated tax law in tax systems so that its application is clear and predictable. Tax compliance costs, the costs that people incur to comply with tax laws, are an important proxy measure of the level of simplicity of tax systems (Sandford 2000, 117). However, country tax compliance cost data are not readily available, and even when they are available, they are not comparable across countries due to differences in research methodologies and the definitons used in data collection (Sandford 2000, 134). Hence, STV is operationalized by a country survey rating of tax simplicity (on a slace from 1 to 7). Data were gathered from the Global Competitiveness Report published by the World Economic Forum (WEF 2003, 2004). WEF (2004, 535) asks the following question with respect to tax simplicity: Your countrys tax system is 1 highly complex to 7 simple and tranparent. Thus, the more simple and transparent a countrys tax system, the higher its score on tax simplicity. WEF collects data through its global network of 104 Partner Institutes and that administer an executive opinion survey on its behalf. Survey respondents are CEOs or senior managers in more than 100 countries. All survey questionnaires are collected and analyzed centrally. WEF finds that its survey results are robust with respect to changes in sample size. Moreover, WEF observes that in those cases where hard data are available, the survey results strongly confirm the information provided by the hard data. Averaged WEF tax simplicity data for 2002 2003 are used.