Let me start by saying that this story was very gripping. The central idea that kept reappearing as I read was that humans, by nature, desire to have a sense of belonging. I may be bold for saying this, but some consider the meaning of life itself is to be a part of something bigger than themselves; to be recognized. Shallow? Perhaps. But think of it this way: James' lies may not have been told because he felt as if he had something to hide. Instead, perhaps he told lies in order to grab the attention of people around him: his friends, strangers on the bus to Los Angeles, and most importantly, his mother. After his father died, maybe James felt as if his new job was to fill the void formerly filled by his father, being the "man of the house", or being good enough to make his mother feel proud of him. In other words, James' lies may have stemmed from the best of intentions.
Basing my next point from what Chris posted, "liars want to be heard". This, in my opinion, is especially true for children, such as James. All of the small children I've ever been around love to tell stories; the taller the tale, the better. Could it be possible that James simply had a vivid imagination and a knack for storytelling? This is an unlikely theory, but a plausible one nonetheless.
Another point is in agreement with Jaden's post. Simply put, people sometimes lie to protect each other's feelings. The best example in "The Liar" is when James carried his dead father's body up to his bedroom and placed him in his bed. Perhaps this is symbolic for a final "resting" place. Nonetheless, James did not want to tell his mother the truth about where his father died because she found solace in the fact that he died "in bed". Strangely enough, it seems as though the bed justifies the father's death, and the mother would've been more distraught if he had been found in his chair.
On the last page, James boards a bus to stay with his brother, Michael for a few weeks. The last bit of dialogue proves either James' addiction to lying, or his talent for entertaining others with tall tales. When asked by his neighboring passenger of his parents' occupations, he told her a bunch of hoopla about aiding Tibetans with his parents who were missionaries in Tibet. James then proceeds to sing in what he claimed to be Tibetan. Another lie? Yes, but it has potential to be more than that; his Tibetan tale could be symbolic of a new beginning for James, a new chapter in his life. Although his claims weren't factual, he had everyone on that bus gathered round him, clinging onto his every word. In the words of Marshall McLuhan, "Anyone can tell the truth with the facts. It's when you don't have the facts and tell the truth that you're special."