The impact of terrorism on tax enforcement effectiveness: a case study of the Basque Country and Navarre

Abstract

This paper analyses the impact of terrorism on tax enforcement effectiveness by focusing on the case of the Basque Country and Navarre. The reduced-form model shows that terrorism negatively affects tax enforcement set by the regional administration and, consequently, the way it is perceived by residents in this area. These results are tested by using Spanish surveys and other data sources, finding evidence of the negative impact of terrorism on tax enforcement as it is perceived by residents in the Basque Country and Navarre. In particular, this effect is stronger for entrepreneurs and liberal professionals. Instead, no significant impact for individuals resident in the rest of Spain is found.