Exploring the Drivers of Voluntary Tax Compliance in Ethiopia: An Application of the Deterrence Theory and Slippery Slope Framework

Abstract

This study investigates the key determinants of voluntary tax compliance among Category “A” taxpayers in Hawassa City, Ethiopia, with a particular focus on the mediating role of public trust. Drawing on the Slippery Slope Framework and Deterrence Theory, the research examines how economic, psychological, cultural, and institutional factors shape taxpayers’ willingness to comply. Data were collected from 308 businesses using structured surveys, and the analysis employed structural equation modeling to test direct and indirect relationships. The findings reveal that while institutional and cultural factors have strong direct effects on compliance, economic, and psychological factors influence behavior indirectly through public trust. Public trust emerges as a critical mechanism, translating perceptions of fairness, transparency, and accountability into voluntary compliance. The study highlights the importance of designing tax policies that not only ensure enforcement but also build confidence in government institutions. Policy implications include enhancing transparency, leveraging local cultural networks, linking tax payments to visible public services, and tailoring outreach strategies to different demographic groups. By emphasizing trust-building alongside effective administration, the study provides actionable insights for fostering sustainable voluntary tax compliance in developing-country contexts.