Moderation and Mediation Effects of Tax Compliance on Economic Growth: A Tale on Global Prosperity Through Key Socioeconomic and Political Levers

ABSTRACT Economic growth, as one major goal for economies around the world, has been scrutinized across decades through multiple theoretical and empirical approaches that emphasize the role played by factors such as technological progress, human capital, climate change, knowledge, innovations, and institutions for steering its evolution. However, the complexity and the relevance of this economic phenomenon leave room for novel investigations and insights. This study investigates the mechanisms that shape the economic destiny of 125 countries spread across all levels of economic development for the period 2003–2020 by advancing a new theoretical setting that considers the dual role of tax compliance as a moderator and mediator. According to our empirical results yielded via multiple regressions with bootstrapping, tax compliance steers and enhances the relationships between key socioeconomic and political levers and economic growth. We show that in countries with higher levels of tax compliance, economic growth rises due to strong governance and institutional quality, economic freedom, and a dynamic business environment, flexible labor markets, and socioeconomic development. Therefore, societies where regulations, principles, and norms of doing business and contributing to state budgets are followed by most taxpayers are conducive to higher long‐term prosperity. In such contexts, public authorities should continuously strive to implement efficient public policies, strengthen the rule of law and mitigate corruption acts, secure a stable political environment, and educate citizens on the importance of tax compliance.