credit constraints and the phenomenon of child labor abstract this paper develops an overlapping generations general equilibrium model where inefficient child labor arises due to credit constraints it derives a positive relationship between inequality in the distribution of income and the incidence of child labor looking at policy implications it shows how trade sanctions against countries using child labor may fail to reduce the incidence of child labor it discusses some alternative policies to reduce the incidence of child labor

how efficient is the voting market it is by now well established that good macroeconomic conditions benefit the incumbent president and his congressional party confreres at the polls this result is not unanimous see for example stigler or arcelus and meltzer2 and may not be universal 3 however the basic results in kramer 4 the progenitor of the modern literature on the effect of economic conditions on elections seem to have stood the test of time the broad consensus of this literature is that voters in presidential and congressional elections 1 reward income growth and punish unemployment and inflation 2 probably give greater weight to income growth than to unemployment and inflation and 3 myopically ignore any information beyond the recent past say prior to the election year 5 so far however the data have outrun interpretation while economic conditions seem to matter we do not know why they matter or how plausibly to characterize the process by which voters translate information about economic conditions into voting decisions this article tries to fill that gap though it extends the empirical literature to gubernatorial elections its main con

local elites and popular support for economic reform in china and india this article analyzes why it is that china an authoritarian political system has managed to generate more popular support for the reform process than india a democracy the authors argue that when local politicians and bureaucrats are more supportive of the reform process there is likely to be greater popular support for economic reform local political elite may be more supportive of reform in an authoritarian than in a democratic system because the level of local elite support for the reform process is influenced by the incentives faced by local elite in china institutional reform changed the incentives faced by local elite whereas in india reforms have not been accompanied by institutional changes that would encourage local elite to support reform to the same extent as in china the argument is based on local elite and mass surveys conducted in china and india in 1990 and 1996 respectively a logit model controlling for a variety of alternative explanations provides evidence that local elite

the macroeconomic strike model a study of seventeen countries 1948 1975 this paper reports the results of an analysis of data on industrial conflict strikes and lockouts in seventeen oecd countries during the period 1948 75 a number of models are tested on this broad data set including the major elements of the ashenfelter and johnson model contrary to ashenfelter and johnson s results for the united states this study finds for most countries a positive relationship between the number of conflicts and the rate of increase in real wages in manufacturing further the increase in nominal wages produces stronger results in all models tested than the increase in real wages the effect of unemployment is unstable across countries and only one of two political variables yields even modest results the authors suggest that an explanation of their findings might be found in the relationship between changes in the wage structure and changes in the level of conflict

political regimes and the extractive capacity of governments taxation in democracies and dictatorships recent political and economic transformations in latin america africa asia and eastern europe have brought about a renewed interest in the incentives and capabilities of different types of political regimes to implement policies that are deemed necessary for economic development in particular policies aimed at increasing tax revenue one central question is whether democracies can collect as much in taxes as dictatorships this article addresses this question by examining whether regime type classified as democracy or dictatorship has a causal impact on a government s capacity to mobilize resources through taxation on the basis of data gathered for 108 countries for the period between 1970 and 1990 the article concludes that observed differences across countries regarding the level of taxes collected by the government are not due to the fact that some are under a democracy and others under a dictatorship concerns about the inability of democratic regimes to collect taxes are therefore unfounded

a statistical model for multiparty electoral data we propose an internally consistent and comprehensive statistical model for analyzing multiparty district level aggregate election data this model can be used to explain or predict how the geographic distribution of electoral results depends upon economic conditions neighborhood ethnic compositions campaign spending and other features of the election campaign or characteristics of the aggregate areas we also provide several new graphical representations for help in data exploration model evaluation and substantive interpretation although the model applies more generally we use it to help resolve an important controversy over the size of and trend in the electoral advantage of incumbency in great britain contrary to previous analyses which are all based on measures now known to be biased we demonstrate that the incumbency advantage is small but politically meaningful we also find that it differs substantially across the parties about half a percent for the conservatives 1 for the labor party and 3 for the liberal party and its successors also contrary to previous research we show that these effects have not grown in recent years finally we are able to estimate from which party each party s incumbency advantage is predominantly drawn

the economics of child labor if child labor as a mass phenomenon occurs not because of parental selfishness but because of the parents concern for the household s survival the popular argument for banning child labor loses much of its force however this assumption about parental decision making coupled with the assumption of substitutability in production between child and adult labor could result in multiple equilibria in the labor market with one equilibrium where children work and another where adult wage is high and children do not work the paper establishes this result and discusses its policy implications copyright 1998 by american economic association

swallowing the bitter pill sources of popular support for neoliberal reform in latin america what accounts for the surprisingly widespread popular approval that painful neoliberal reforms elicited in several latin american countries this article compares the explanatory power of two rival hypotheses which draw on conventional rational choice and psychological decision theory the compensation hypothesis claims that governments can engineer support for costly reforms by compensating the losers through targeted social benefits the rescue hypothesis questions this claim and maintains that draconian adjustment only finds support if it promises to revert a deep crisis and avert further losses data from argentina bolivia brazil mexico peru and venezuela suggest that the rescue hypothesis accounts much better for the initial endorsement of neoliberal shock programs immediately after their enactment when these shock programs bring about economic stabilization and recovery targeted social benefits help consolidate support for neoliberalism which a statistical analysis of the impact of social s

neoliberalism and lower class voting behavior in peru it is often assumed that lower classes will resist market oriented neoliberal reforms that impose economic austerity on popular sectors and exacerbate social inequalities however the peruvian cas

the political economy of expenditures by the peruvian social fund foncodes 1991 95 the peruvian social fund foncodes was created by president alberto fujimori in 1991 with the stated objectives of generating employment alleviating poverty and improving access to social services this article uses province level data on monthly expenditures socioeconomic indicators and electoral outcomes to analyze political influences on the timing and geographic distribution of foncodes expenditures between 1991 and 1995 i reach three main conclusions first these expenditures increased significantly before national elections second foncodes projects were directed at provinces in which the marginal political effect of expenditures was likely to be largest third these projects favored the poorest provinces which suggests that the program also had a redistributive function the results are robust to a large number of specifications and controls the peruvian data support predictions made in the literature on political business cycles as well as the literature on political influences on the allocation of discretionary funds

the political costs of taxes and government spending the marginal political costs of different types of taxes and government spending as well as voter preferences over different fiscal variables are examined using two different specifications for political cost one based on the probability of incumbent defeat and the other based on the incumbent s percentage of the vote models associated with these two specifications in which voting behaviour depends on disaggregated taxes and government expenditures are estimated using clata from canadian provincial elections the empirical results which indicate that different types of taxes and expenditures have quite different marginal political costs have important implications for models that incorporate voter pref erences

the macroeconomics of populism in latin america by populism this paper refers to an economic approach that emphasizes growth and income redistribution and deemphasizes the risks of inflation and deficit finance external constraints and the reaction of economic agents to aggressive nonmarket policies it analyzes two instances of populism chile under allende and peru under garcia these experiences are described in detail not as a righteous assertion of conservative economics but as a warning that populist policies ultimately fail and always at a frightening cost to the groups they were supposed to benefit this paper explores the question of whether some variant of populist policies could succeed it suggests that populist policies could succeed if they stayed clear of foreign exchange constraints emphasized reactivation for a brief initial period and then shifted to growth policies most important expansionary policies must reflect awareness of capacity constraints and must rely for financing on an extremely orthodox fiscal policy and rigorous tax adminsitration the paper concludes by warning that imf style policies unconcerned with growth of social progress may establish financial stability in the short run but inevitably open the door to yet another round of destructive reaction in the form of populist policies

child labor cause consequence and cure with remarks on international labor standards although the literature on child labor is enormous it lacks a common theoretical foundation in this paper analytical survey of this field is provided keeping in mind that this is an area where the primary reason for theorizing is ultimately to influence policy overall it is noted that the literature on child labor is an illustration of abundance and anarchy although empirical writings on child labor are numerous they are not usually founded on theory it is argued that there is much that can be done in curbing the issue of child labor several theories were studied in this paper including collaborative intervention such efforts include public action which alters the economic environment such that the parents of their own accord prefer to withdraw the child from labor force another strategy involves the government a legal intervention is enforcing a total ban on the subject although such interventions have good intentions some of them may not be feasible in general it is better to take economy wide measures against child labor and if there is to be a sector specific ban it should be based on the working conditions of that sector rather than the destination of the goods

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

is child labor inefficient we build a model of child labor and study its implications for welfare we assume that there is a trade off between child labor and the accumulation of human capital even if parents are altruistic and child labor is socially inefficient it may arise in equilibrium because parents fail to fully internalize its negative effects this occurs when bequests are zero or when capital markets are imperfect we also study the effects of a simple ban on child labor and derive conditions under which it may be pareto improving in general equilibrium we show that the implications of child labor for fertility are ambiguous

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

the structural adjustment of politics in africa abstract it has long been recognized that the structural adjustment programs currently being proposed by the world bank and the international monetary fund in africa have important political consequences however there has been almost no attention devoted to what structural adjustment if implemented means for the way that politics is actually carried out in african nations the failure to examine the long term consequences of economic reform for politics is particularly surprising given that the major instruments of structural adjustment public sector reform devaluation elimination of marketing boards threaten to change not only the constituencies that african leaders look to for support but the way in which leaders relate to their supporters in the countries south of the sahara the paper examines how structural adjustment if actually implemented would affect politics in african countries the paper finds that structural adjustment makes the political climate much riskier for leaders while weakening the central apparatus of the state on which rulers have long relied to stay in power the implications of the analysis for donors are also discussed

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

a note on multiple general equilibria with child labor abstract it has been conjectured that the child labor market may exhibit multiple equilibria this paper develops the concept of a wage bill curve and establishes the multiple equilibrium result in a general equilibrium model thereby clarifying the circumstances where child labor should be banned

public support for economic reforms in poland using monthly surveys the author examines the impact of aggregate economic conditions on the dynamic of support for the polish program of economic reforms the balcerowicz plan to highlight the ambiguity of the standard retrospective model the author analyzes the impact of subjective perceptions of economic conditions on postures toward the reform program asking if people were extrapolating the past when forming predictions about the future then the effect of these predictions on the postures toward reform is studied finally the author focuses on the distributional effects substantive conclusions concerning the impact of economic conditions on the support of economic reform programs under democracy close the article

organizing interests and coalitions in the politics of market reform in latin america a recent wave of deep empirical research provides a solid basis for a comparative reassessment of the role of coalitions in the politics of market reform in latin america in the 1990s this research confirms earlier findings that interest groups and distributional coalitions were not major protagonists in either antireform or proreform coalitions the new research goes further empirically into analyzing the origins of interests especially business interests and finds them to be much more ambiguous and dynamic than assumed in earlier studies consequently other factors especially organizations and the evolving macroeconomic context were stronger influences on preferences regarding reform given the relative weakness of interest group coalitions the article provides a typology and preliminary analysis of other kinds of coalitions electoral legislative and policy that have become more central to reform politics these other types of coalitions still require further theoretical elaboration and empirical investigation in order to determine how they can best be deployed to illuminate reform politics

bureaucratic corruption as a constraint on voter choice this paper has attempted to explain variations among countries in the tax level in the importance of progressive taxes and transfers and in the after tax share of middle income groups particular attention was paid to the declines in each of these variables which are observable in cross section data in the intermediate ranges of development it was argued that these phenomena are difficult to explain by variations in the demand for public spending or in the degree of tax evasion

public opinion and market reforms the limits of economic voting the broadly held view that promarket reforms are good for most people is in conflict with the equally broadly held view that in democracies reforms will generate widespread resistance resistance is expected because reforms typically produce economic downturns at least over the short term under normal circumstances we expect citizens to withdraw support from governments during periods of economic decline if citizens withdraw support then governments worried about the next election may abandon reforms but our expectations should be different of new democracies pursuing promarket reforms citizens may believe governments when they claim that things have to get worse before they get better or that economic stagnation is the fault of the past model research in poland peru and mexico reported in this special issue supports these expectations hence under democracy there is more scope for support of painful reforms than frequently acknowledged

opting out of the social contract tax morale and evasion we examine the individual level determinants of tax morale in low capacity states specifically latin american countries where the social contract is often perceived as fractured we argue that in

building support for taxation in developing countries experimental evidence from mexico abstract drawing on insights from the literature on institutional design how rules shape behavior to achieve desired outcomes this article examines how certain design features of taxes such as allowing for civil society oversight earmark mechanisms that direct tax revenue for a specific purpose and sunset provisions that make the duration of taxes finite affect political support for tax reforms it also evaluates how three important aspects of the fiscal exchange trust in government perceptions of the public good and level of income shape the effect of these design features based on an original survey experiment focusing on the provision of public safety in mexico i find that these design features increase political support for taxation especially among those with low trust in government and low income these findings have important implications not just for mexico but also a number of other countries across latin america that have both low levels of extraction and increased public spending imperatives

regional returns to education child labour and schooling in india abstract we offer evidence from india that higher regional returns to primary education not only increase the likelihood that boys and girls attend school but also decrease the likelihood that they work these relationships hold only for the top three quintiles of the income distribution and mostly for children in the age group 10 14 years the former result suggests that liquidity constraints may not allow poorer households to respond to the economic benefits of education policies that raise the economic benefits of education may increase human capital investments in households that do not rely on their children s incomes for survival however low schooling and high child labour will persist among credit constrained families unless these households are provided with the economic ability to respond to these benefits

privatisation discontent and utility reform in latin america abstract privatisation faces strong and increasingly popular opposition in latin america this paper uses individual data on social attitudes socioeconomic status and demographic information from three waves of latinobarometro surveys 1998 2000 and 2002 in 17 countries to study the role of privatisation of utilities and its distributional impact we find that disagreement with privatisation is most likely when the respondent is on a low to middle income and when it involves a high proportion of public services such as water and electricity this complements recent empirical research that points to distributional concerns in the implementation of privatisation in latin america particularly because of inadequate regulation of utilities

trade openness foreign direct investment and child labor summary the skeptics of globalization argue that increased trade openness and foreign direct investment induce developing countries to keep labor costs low for example by letting children work this article argues that there are good theoretical reasons why globalization might actually have the opposite effect we test this with various measures of child labor and provide the first analysis of foreign investment in addition to trade we present evidence that countries that are more open to trade and or have a higher stock of foreign direct investment also have a lower incidence of child labor this holds for the labor force participation rate of 10 14 year old children the secondary school nonattendance rate and a count measure of economic sectors with child labor incidence as the dependent variables globalization is associated with less not more child labor

the economics of child labor comment in a recent paper kaushik basu and pham hoang van bv 1998 develop an important and very interesting model in which a fairly productive economy exhibits multiple equilibria with children working in at least one they identify two assumptions as essential to this result the first which they call the luxury axiom is that a family sends its children to the labor market only if its income from sources other than child labor is very low the second is embodied in their substitution axiom which states that from the point of view of firms child labor is substitutable for adult labor in this comment we show that in addition to these two assumptions about the micro level behavior of households and firms there is also an essential macro level assumption that may be termed the distribution axiom income or wealth from non labor sources must be sufficiently concentrated in the hands of a few agents we establish that if non labor income is distributed with sufficient equality a market equilibrium with child labor cannot exist in the bv model beyond their contribution as an extension of bv s theory our results formalize a proposition implicit in recent policy discussions of child labor christiaan grootaert and ravi kanbur 1995 note that as household level poverty is well known to be the major cause of child labor g eneral economic development equitably distributed is the best and most sustainable way of reducing child labor p 198 emphasis added policy documents from the international labor organization ilo have long conveyed this view and now the world bank appears to as well peter fallon and zafiris tzannatos 1998 there is a growing recognition that while economic development and development policies are necessary to eliminating child labor they are not always sufficient on their own distributional considerations matter indeed in the case in which bv s model yields multiple equilibria th this abstract was borrowed from another version of this item

the intriguing relation between adult minimum wage and child labor because most parents send their children to work when compelled by poverty one would expect a rise in adult wage to lower child labor however if the rise in wage is achieved by a minimum wage law its impact can be intriguing it can for instance cause some adults to be unemployed and send their children to work which in turn displaces more adult labor and sends more children to work the paper solves this process and predicts the incidence of child labor it shows that for appropriate parametric configurations child labor may fall or rise as the adult minimum wage is raised

food for education versus school quality a comparison of policy options to reduce child labour in a model in which credit markets play a crucial role we examine two policy options for reducing child labour food for education and investment in education quality with an imperfectly elastic supply of credit an increase in food subsidy is more eective in reducing child labour than an income equivalent increase in expenditures in education quality the eectiveness of the latter policy improves and the optimal share of resources devoted to this policy increases at the expense of food subsidies as the supply of credit becomes more elastic

why people pay taxes the case of the development levy in tanzania abstract this paper examines factors determining tax compliance behavior in local authorities in tanzania the case study is the poll tax locally named development levy the study finds support for the hypothesis that tax compliance is positively related to factors such as ability to pay the perceived probability of being prosecuted and the number of tax evaders known personally by the respondent oppressive tax enforcement harassment of taxpayers and discontent with public service delivery seem to increase tax resistance and may explain widespread tax evasion

will trade sanctions reduce child labour the role of credit markets abstract we examine the interaction between credit markets trade sanctions and the incidence of child labour in a two good two period model with unequally wealthy households both poverty and poor education quality inter alia are important determinants of child labour the incidence of child labour decreases as we move from the case of borrowing constraints to the case in which poor households can borrow freely from rich ones and then to the case of perfect international credit markets trade sanctions can increase child labour especially among poor households a possibility that decreases as their access to credit improves

tax morale in latin america in the tax compliance literature there is a lack of empirical evidence on the degree of tax morale in developing countries as a novelty this paper focuses thus on latin america analysing tax morale as a dependent variable and searching for factors that systematically affect tax morale working with the two data sets latinobarometro and world values survey our findings indicate that there is a significant correlation between tax morale and the size of shadow economy furthermore people who said they knew have heard about practised tax avoidance have a significantly lower tax morale than others looking at individuals perception of reasons for tax evasion we found that the tax burden lacking honesty and corruption are seen as the main factors we observed a significantly lower tax morale in south america mexico than in the central american caribbean area furthermore trust in the president and the officials the belief that other individuals obey the law and a pro democratic attitude have a significant positive effect on tax morale

political and industrial change in a model of trade union militancy and real wage growth the paper forwards an analytical formulation of the wage generating process in which trade union militancy and real wage movements interact key features of the advanced model are 1 a clarification of the role of macropolitical variables and of changing industrial composition in the wage determination process and 2 a simple explanation of why increasing unemployment and accelerating real wage growth may raise trade union militancy the empirical results obtained for west germany support the proposed model and stress the importance of treating labor militancy as a latent unobservable variable which relates to multiple indicators and may be subject to measurement errors

why do developing countries tax so little the power to tax is taken for granted in a great deal of mainstream public finance in considering limits to taxation traditional research in the field focuses on limits imposed by incentive constraints which are tied to asymmetric information or to politics and political institutions the limits to taxation are rarely tied to the administrative capacity of the state but incentive constraints alone cannot explain the vast differences in the levels of taxation that we see across the world and across time low income countries typically collect taxes of between 10 to 20 percent of gdp while the average for high income countries is more like 40 percent in essence our view on these patterns is similar to that taken by joseph schumpeter 1918 almost a century ago when he noted the fiscal history of a people is above all an essential part of its general history an enormous influence on the fate of nations emanates from the economic bleeding which the needs of the state necessitates and from the use to which the results are put in order to understand taxation economic development and the relationships between them we need to think about the forces that drive the development process poor countries

why is trade reform so popular in latin america a consumption based theory of trade policy preferences despite wavy national economies and a perception among observers that economic globalization is growing increasingly unpopular aggregate support for free trade remains quite high across latin america this finding is robust to the wording of survey questions and has been quite resilient through time even in the face of economic stagnation current theories of trade preferences including the widely applied heckscher ohlin model do not explain this trend instead the author proposes a theory of trade preferences based not on what citizens produce but on what they consume statistical analyses of different surveys including one conducted in fourteen latin american countries demonstrate that a consumption based approach best accounts for trade preferences across individuals and countries moreover the theory provides an explanation for the overall popularity of free trade in latin america citizens recognize and appreciate the lower price increased variety and higher quality of goods that have come in the wake of trade liberalization

child labor child schooling and their interaction with adult labor empirical evidence for peru and pakistan using data from peru and pakistan this article tests two hypotheses there is a positive association between hours of child labor and poverty and there is a negative association between child schooling and poverty both of these hypotheses are confirmed by the pakistani data but not by the peruvian data the reduction in poverty rates due to income from children s labor is greater in pakistan than in peru the nature of interaction between adult and child labor markets varies with the gender of the child and the adult in peru rising men s wages significantly reduce the labor hours of girls whereas in pakistan there is a strong complementarity between women s and girls labor markets both data sets agree on the positive role that increasing adult education can play in improving child welfare

the conscription of wealth mass warfare and the demand for progressive taxation the dominant narrative of the politics of redistribution in political sci ence and economics highlights the signature role of the rise of electoral democracy and the development of political parties that mobilize working class groups we argue in this article that this narrative ignores the critical role played by mass warfare in the development of redistributive public policies focusing attention on the determi nants of progressive taxation we argue that mobilization for mass warfare led to demands for increased taxation of the wealthy to more fairly distribute the burden for the war effort we then show empirically that during the past century mass mobi lization for war has been associated with a notable increase in tax progressivity in the absence of war neither the establishment of universal suffrage nor the arrival of political control by parties of the left is systematically associated with large increases in tax progressivity in making these arguments we devote particular attention to a difference in differences comparison of participants and nonparticipants in world war i those who have made fortunes out of the war must pay for the war and labour will insist upon heavily graduated direct taxation with a raising of the exemption limit that is what labour means by the conscription of wealth

economic reform and public opinion in peru 1990 1995 even if they are confident that prosperity lies just over the horizon politicians who embark on promarket reforms know they are in for some stormy weather how will they fare in voters eyes once the pain is felt will voters inevitably turn against politicians who impose painful measures without an electoral mandate to do so the story of economic reform and public opinion in peru under alberto fujimori 1990 1995 poses just these questions the author uses monthly public opinion polls and monthly economic data to analyze the impact of economic changes during fujimori s reform program on opinions of the reforms and the president the author finds that limenos withdrew support from the program and the president when employment fell and inflation rose responses consistent with the findings of the economic voting literature but when real wages fell they became optimistic about the future and more likely to support reforms and the government

tax morale affects tax compliance evidence from surveys and an artefactual field experiment our working hypothesis is that cross cultural differences in tax compliance behavior have foundations in the institutions of tax administration and citizen assessment of the quality of governance tax compliance being a complex behavioral issue its investigation requires use of a variety of methods and data sources results from artefactual field experiments conducted in countries with substantially different political histories and records of governance quality demonstrate that observed differences in tax compliance levels persist over alternative levels of enforcement the experimental results are shown to be robust by replicating them for the same countries using survey response measures of tax compliance

child labor in carpet weaving impact of social labeling in india and nepal summary does the labeling of tradable products like carpets which have been produced without child labor increase the welfare of children and their families this paper presents results of surveys conducted in india and nepal the findings suggest a positive link between social labeling and the removal of child laborers for households above the subsistence level however for households below the subsistence level no significant influence has been found

trust and taxpaying testing the heuristic approach to collective action theory trust is a critical attitude that extends the duty heuristic developed in scholz and pinney 1995 the trust heuristic can provide the basis for a contingent compliance strategy capable of sustaining cooperative solutions to collective action problems of governance if two conditions are met first compliance with laws must be conditional on levels of trust in specific legal arenas second a citizen s trust in government and trust in other citizens willingness to obey the law must reflect the costs and benefits associated with obeying laws hypothesis this article tests the first hypothesis in the tax arena trust in government and in other citizens increase compliance over and above the levels expected from an internalized sense of duty to obey laws and the fear of getting caught by enforcement agencies like the irs method we test the hypotheses with regression analysis of survey and tax return data from a stratified sample of 299 middleand upper income taxpayers using the newlydeveloped two stage conditional maximum likelihood analysis to control for endogeneity we extend this approach to the analysis of multi categorical ordered dependent variables findings both dimensions of trust significantly increase the likelihood of tax compliance even after controlling for duty fear selection bias and potential endogeneity effects