Governance Quality, Informality, and Sustainable Tax Capacity in BRICS: A Panel Mediation Analysis

This study investigates whether governance quality enhances sustainable tax revenue by reducing the size of the informal economy, an underexplored transmission channel in emerging economies. Focusing on BRICS countries (Brazil, Russia, India, China, South Africa) over ۲۰۰۰–۲۰۲۳, we integrate the Quality of Government framework, Agency Theory, and the fiscal social contract perspective to propose a mediation model in which stronger institutions lower informality, thereby broadening the tax base. Using an unbalanced panel, we employ counterfactual causal mediation analysis via fixed-effects regressions and bootstrapping, complemented by dynamic system GMM to address sequential ignorability and endogeneity. After controlling for GDP per capita, inflation, unemployment, financial inclusion, and digital payments, governance quality exhibits a significant positive direct effect on tax revenue and a significant negative effect on informality. The indirect effect through informality is ۰.۳۱۷, confirming partial mediation. Furthermore, digital financial inclusion strengthens the governance–formalization link, evidence of moderated mediation. These findings extend the governance–tax literature by demonstrating that formalization is a critical mechanism, especially where informality is pervasive. Policy strategies should therefore sequence institutional reforms with formalization incentives and digital infrastructure development to maximize fiscal capacity.

کلیدواژه ها:

institutional reform ، Shadow Economy ، Fiscal revenue ، Formalization incentives ، Digital payments