Abstract

We posit that tax morale of business owner-managers’ is related to their perceptions of the institutional and social context, in particular to the perceptions of political and tax institutions, to the likelihood and severity of punishment if caught evading tax, and to social norms relating to tax evasion as documented by observed behaviour of other entrepreneurs. To explain these relationships, we extend the institutional theory framework that links the cognitive and the normative aspects, and distinguish between behaviour that becomes institutionalised from that which is seen as legitimate. We also argue that as well as looking at macro institutions, one needs to consider the micro social structures: norms of behaviour observed in the close neighbourhood of the entrepreneur. Following that, while our direct objective is to add to understanding of the institutionalisation of the informal practices, our research makes also a significant contribution providing a theory framework that can be applied to other areas of entrepreneurship research.

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