A Typology of Tax Compliance in Developing Economies: Empirical Evidence from China’s Shoe Industry

Abstract

Drawing on fieldwork investigations of shoe manufacturers in southeastern China, this article provides empirical evidence for understanding these businesses’ taxpaying practices. We find that since the legitimacy of tax law is largely absent amongst business taxpayers, instrumental consid- erations dominate taxpayers’ decisions to pay or not pay taxes. We then incorporate “structural opportunities for evasion” and “perceived costs of evasion” to develop a two-by-two matrix to understand the following types of behavior: aggressive evasion, obliged compliance, strategic compliance, and reciprocal compliance. We argue that the matrix explains why value added tax fraud is widespread in China while voluntary compliance is rare. It also helps to illuminate com- pliance more generally in developing economies.