The Political Economy of Taxation

The Political Economy of Taxation

Lessons from Developing Countries

Paola Profeta and Simona Scabrosetti

This unique book in a relatively under-researched subject area will prove essential reading for academics, researchers and practitioners focusing on political economy, public finance and the economics of taxation.

Chapter 1: Introduction

Paola Profeta and Simona Scabrosetti

Subjects: economics and finance, political economy, public finance, public sector economics, politics and public policy, political economy

Extract

Taxation is a major issue in economics and politics. Tax design and the implementation of tax reforms are at the core of economic policy. They are also among the more debated issues in the political arena. In modern democracies tax reforms need the support of voters in order to be implemented, while at the same time policy makers try to design a tax system and propose tax reforms to attract and please as many voters as possible. The issue of taxation can attract and alter votes, in particular those of uncertain citizens (who may be a large part of the electorate) who decide which party to vote for by computing the advantages, even (and, in some cases, mainly) fiscal ones, that they could enjoy from this party as opposed to the opponents (Hettich and Winer, 1999; Profeta, 2007). In traditionally non-democratic countries the process underlying tax decisions is much more difficult and less clear to predict. Lobby groups and interest groups that are economically and politically powerful have a dominant role. And when these countries experience a democratic transition it is very likely that these influences will remain strong and interact with voters’ preferences in determining tax policy outcomes. Democratic and economic transitions are generally strictly related (Boix, 2003). In many areas of the world the economic transition goes hand-in-hand with a political transition towards a modern concept and organization of democracy. Although it is difficult to establish the correct direction of a causal relationship, there may be positive feedback...