Torgler and Schneider (2009) present evidence from around the world (59 countries) showing that if citizens perceive that their interests are properly represented in political institutions (institutional quality is high), the likelihood that they would avoid paying taxes and participate in the underground economy decreases. The other significant determinant is tax morale indicating citizens’ beliefs in their moral obligation to pay taxes as a contribution to society. Likewise, Frey and Frey (2002) demonstrate that individuals experience higher utility when they perceive the taxation process as more respectful and are therefore more willing to pay their taxes.

# **_Indicators_**

- **_Institutional quality_** or perceptions that political institutions represent citizens’ interest in the Torgler and Schneider 2009 study are measured using the “Quality of Governance” index which measures perceive quality of governance (Kaufman, Kraay, and Mastruzzi 2003). The key dimensions are: voice and accountability in terms of the political process, civil liberties and political rights; political stability and absence of violence such as perceptions about the stability of government; capacity of the government to effectively formulate and implement policies including government effectiveness to produce policies and deliver goods, and regulatory quality indicating policy friendliness of environment to businesses; respect for citizens and the state for institutions that govern economic and social interactions including rule of law or the degree of agents’ confidence in and compliance with rules of society and control of corruption or perceptions about the degree of corruption.

- **_Shadow economy_** was measured in the Torgler and Schneider 2009 study as the deliberate concealment of market-based legal production of goods and services from public authorities including avoiding payment of: income, value added or other taxes, social security contribution, minimum wages and complying with safety standards and administrative procedures.

- **_Tax morale_** is measured in the Torgler and Schneider 2009 study as an individual’s belief in the moral obligation to pay taxes as a contribution to society

**Citizen participation in decision making and establishing laws and policies led to smoother project implementation** . For instance, Bardhan’s (2000) experiment shows that citizens’ participation led to fewer hurdles in implementation of an agricultural irrigation project. He found that when average farmers believe they had a say in water rules, rather than the elite or government, they are more likely to be positive about the water allocation system and about rule compliance by other farmers. In fact, the farmers who were typically most guilty of violating the rules (elite) were more likely to follow the rules when they helped to establish them.

# **_4.2 The influence of participatory budgeting on government_**

**Participatory budgeting can increase accountability by municipal governments that then improve openness and transparency** . Participatory budgeting engages citizens and encourages their engagement beyond just sharing their opinions on the budget allocations and identifying projects most important for their communities. Through institutional mechanism of PB, citizens can hold government accountable for budget outcomes in a public forum that contributes to greater transparency.

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