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TheSwancyGroup Group

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Easton Myers
Easton Myers

2007. An Institutional Theory Of Sanctions Onse...

It is sometimes claimed that in addition to structure, function andculture, social institutions necessarily involve sanctions. It isuncontroversial that social institutions involve informal sanctions,such as moral disapproval following on non-conformity to institutionalnorms. However, some theorists, e.g. Jon Elster (1989: Chapter XV),argue that formal sanctions, such as punishment, are a necessaryfeature of institutions. Formal sanctions are certainly a feature ofmost, if not all, of those institutions that operate within a legalsystem. However, they do not appear to be a feature of allinstitutions. Consider, for example, an elaborate and longstandingsystem of informal economic exchange among members of differentsocieties that have no common system of laws or enforced rules.

2007. An Institutional Theory of Sanctions Onse...


The purpose of this paper is to conduct a systematic review of the factors that shape tax morale. A large range of random explanatory variables identified in the literature as determinants of tax morale are synthesised and structured by drawing inspiration from the institutional theory.

The finding is that the institutional theory provides a suitable theoretical basis to explore tax morale. Indeed, all the factors until now identified as determinants of tax morale (except the control variables/socio-demographic characteristics) can be categorised either as belonging to formal institutions or to informal institutions. The most salient factor is trust, with both vertical and horizontal trust positively related to tax morale.

The aim of this paper is to conduct a systematic review of the factors that influence tax morale. To do so, a large range of random explanatory variables identified in the literature as determinants of tax morale are synthesised and structured by drawing inspiration from institutional theory (Baumol and Blinder, 2008; Helmke and Levitsky, 2004; North, 1990). As such, tax morale is viewed in this paper primarily as a result of the interaction between the formal and the informal institutions. An asymmetry in a society between the laws and regulations of its formal institutions and the socially shared unwritten norms of its informal institutions will result in low tax morale. In Section 1, therefore, the importance of tax morale in explaining various forms of tax non-compliance will be briefly reviewed, followed by the methodology and a structured analysis of the effect of formal and informal institutions on tax morale, alongside the socio-demographic characteristics related to the variations in tax morale. The paper concludes by discussing the tentative policy implications and the identified gaps in the literature.

This paper has provided a systematic review of the factors related to tax morale. Drawing inspiration from the institutional theory (Baumol and Blinder, 2008; Helmke and Levitsky, 2004; North, 1990), tax morale has been viewed in this paper primarily to result from the interaction between formal and informal institutions. As such, an asymmetry between the laws and regulations and the socially shared unwritten norms results in low tax morale.

And there is more bad news. Academic research has shown that sanctions are not only ineffective, but even counterproductive. It has been argued that authoritarian countries do not become more, but less democratic when targeted by sanctions (Peksen & Drury 2010; Wood 2008). In a recently published article in the journal Democratization, we reinvestigate the effect of democratic sanctions, i.e. those which explicitly aim at improving the level of democracy, using new data and statistical analysis, to see if democratic sanctions really are as bad as their reputation. Perhaps surprisingly, our findings are rather optimistic. Our study shows that sanctions are not always effective, sometimes they may even be counterproductive, and all types of sanctions are not equally likely to lead to positive outcomes, but on average, democratic sanctions are, in fact, associated with higher levels of democracy in the targeted state. We also show that democratic sanctions have other more profound effects on the targeted state. In authoritarian states targeted by democratic sanctions, authoritarian leaders are more likely to lose power and countries are more likely to change their basic political institutions. Such institutional changes do not necessarily lead to a fully-fledged liberal democracy, but often open up to increased civilian political control or multiparty elections.

In our recently published study, we provide evidence to the contrary. We argue that empirical research on the effectiveness of sanction must take the explicit goal of sanctions into account. By concentrating only on sanctions aimed at increasing the level of democracy in the targeted authoritarian state, we found that these sanctions are indeed associated with increasing levels of democracy. Moreover, authoritarian regimes targeted by democratic sanctions are more likely to experience institutional and leadership change.

Second, this article has responded to three major criticisms. The three criticisms allege that the institution-based view (1) is a transient theory whose importance will decline as emerging economies develop, (2) has too many incompatible flavors, and (3) has overly focused on formal institutions at the expense of informal institutions. In response, we argue that as the world becomes more institutionally chaotic and unpredictable, the institution-based view is likely to become more important going forward on a worldwide basis. Representing diversity and pluralism, the institution-based view is characterized by its many interdisciplinary flavors whose insights can be brought together. Furthermore, the institution-based view can indeed benefit from and contribute to the broadening and deepening of research on informal institutions.

CPR theory sees the individual as the unit of analysis and her rational choices under a set of constraints that must be explained or controlled (Bardhan and Ray 2006). Calculation of individual preferences provides the logic supporting commons projects with the assumption that rational actors influenced by constraints of resource institutions (enforced rules) will make calculated decisions based on their own best interest (Ostrom 1990; Baldwin 2003). Following this logic, the task of commons projects is to craft the CPR design principles into locally suited rules to build or link into norms (what is permitted and what is not) of compliance and cooperation in order to meet desired resource conservation objectives. Whether the project objectives themselves are open to discussion varies from case to case. However, key from an institutional theory view, is to alter the structure of informal and formal constraints and incentives that actors face to produce the simultaneous production of individually rational and collectively successful environmental outcomes (North 1990). 041b061a72


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