Essays on the Politics of Taxation
Abstract: Taxation is a key activity of any state and a constant point of political struggle. The structure of taxation is continuously changing and evolving, and its size has grown dramatically during the last two hundred years. Many of the cross-national patterns we observe today are the result of centuries old conflicts and challenges, hence we need to take history into account if we want to understand contemporary tax systems. This dissertation is concerned with the evolution of taxation in the last two centuries. During this period modern parliamentary democracy developed and spread, and it is during this period that the contemporary party systems crystallized and the broad lines of conflict between the left and the right emerged. Thus, this period is crucial for our understanding of the effects of political institutions and ideology on policy making.Because of a lack of comparative information on taxation with a long time scale, previous research has been constrained to a small number of mostly European countries. In this dissertation I present a novel dataset (a collaboration with Thomas Brambor) over government tax revenues covering 31 countries from 1800 to 2012. The dataset is unprecedented in both temporal and geographic scope and includes countries from Europe, North America, South America, as well as Australia, New Zealand, and Japan.The first paper is concerned with the notion that democracy itself has an impact on taxation by extending influence to previously excluded groups of poor citizens. I present evidence for the argument that the effects of democracy depend on urbanization. Democratization in an urbanized state leads to higher taxes on income and lower taxes on consumption. In contrast, democratization in rural countries is associated with lower taxes on property.The second paper investigates the influence of ideology on taxation. A puzzle in the literature is why left-wing parties are associated with regressive taxation (e.g., on consumption). I argue that how left-wing governments tax depend on the institutional environment. In countries using majoritarian/plurality electoral systems the left relies more on income tax, and in countries using proportional representation systems the left relies more on consumption tax.In the third paper I investigate the mechanism behind left-wing tax strategy in more detail by studying reforms of consumption taxation in post- war United Kingdom and Sweden. I find that strategic considerations related to how the political system concentrates power in the United Kingdom affected the Labour Party’s attitude towards the value-added tax and its decision not to adopt the tax. The left-wing government in Sweden on the other hand, operating in a different institutional context, decided to introduce a similar tax.The fourth paper, which is coauthored with Johannes Lindvall, contrasts political investments, of which taxation is one example, with short- term crisis management. We present a game theoretic model in which institutions that concentrate power are better at handling sudden crises but worse at making policy with short-run costs and long-term gains. Power-sharing institutions, on the other hand, are better at resolving inter- temporal dilemmas, but perform worse when faced with sudden crises.
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