The effect of government budget on tax compliance: An empirical mediation analysis

Type of the article: Research ArticleAbstractThis study aims to analyze the effect of government budget on tax compliance, with tax fairness and public trust as mediating variables. This study used a sample size of 200 respondents, based on the minimum sample size criteria for partial least squares (PLS-SEM), inverse square root, and gamma-exponential methods. To strengthen the robustness of results, a bootstrapping method with a subsample of 5,000 was used in hypothesis testing. The survey was conducted with 200 individual taxpayers. The results show that the government budget has a positive effect on tax compliance with a coefficient of 0.233. Tax fairness has a positive effect on tax compliance, with a coefficient of 0.573. The results show that government budget expenditure positively affects tax fairness and has a positive indirect effect on tax compliance through tax fairness at the 10% level. The results also show that the relationship between budget expenditure and public trust is negative and statistically significant (β = –0.170, p = 0.036). Government budget positively affects tax fairness and has a positive indirect effect on tax compliance through tax fairness, marginally significant at the 10% level. The IPMA analysis results indicate that tax fairness has the highest importance and performance, while the government budget ranks the lowest. The practical value of this research is that the government must implement a fair taxation system, as it is the primary determinant of tax compliance.