This paper explores the effect of party system institutionalization on the reliance of tax systems on the personal income tax. As a first step, the paper re-examines the relationship between party system institutionalization and taxation patterns employing the recently launched Government Revenue Dataset. In a second step, the relationship in tested in different country subgroups, based on governance structures, availability of alternative sources of revenue, and geographical location. The main results remain fairly robust using the Government Revenue Dataset: where bureaucratic capacity is low, the effect of party system institutionalization is large and highly significant, whereas where bureaucratic capacity is high this effect disappears. Furthermore, the analysis using the Government Revenue Dataset provides additional insights into the large variance between groups of countries. The results indicate that the effect is particularly strong and robust in democratic regimes and where alternative sources of revenue are abundant. Overall, the findings can be considered to provide additional support for two claims: first, that taxation is best understood as a problem of credible commitment, particularly where bureaucratic capacity tends to be limited, and second, that institutionalized collective actors, such as political parties, play a key role in solving this problem.
This paper explores the effect of party system institutionalization on the relevance of the personal income tax in the tax composition. Based on a fiscal contractualism approach, it is argued that institutionalized political party systems increase the capacity of political actors to credibly commit to fiscal contracts agreed with wealthy taxpayers. Consequently, in countries characterized by institutionalized political party systems wealthy taxpayers accept paying a bigger share of the tax burden, as reflected in a greater relevance of progressive tax types. The analysis of panel data for more than 90 countries from 1990 to 2010 supports this hypothesis, showing that party system institutionalization has an especially significant and strong positive effect on the relevance of the personal income tax where bureaucratic capacity is low. At high levels of bureaucratic capacity the effect disappears. The findings strongly support the claim that, particularly in developing countries, where bureaucratic capacity tends to be limited, taxation is best understood as a problem of credible commitment.
Revenue structures vary strongly among developing countries. Most approaches to tax performance fail to give insights into this puzzle. I argue that much of the answer lies in the political dimension and highlight the willingness of elites to pay taxes as the most crucial factor. In contrast to common arguments stressing the relevance of external pressure in explaining tax contributions of elites, I examine how characteristics of the interaction among elites themselves are relevant aspects to take into account. The analysis has strong policy implications. In supporting the emergence of higher performing and fairer tax systems a strategy based on partly aligning with elites' interest and identifying positive drivers of taxation seems more efficient and promising for development cooperation than wagering on strengthening external pressure on powerful social groups. However, the preconditions for the success of these strategies as well as their potential effect on other development goals and future development paths of partner countries call for a cautious trade-off analysis.
In: Berens, Sarah and von Schiller, Armin orcid:0000-0001-5172-8227 (2017). Taxing Higher Incomes: What Makes the High-Income Earners Consent to More Progressive Taxation in Latin America? Polit. Behav., 39 (3). S. 703 - 730. NEW YORK: SPRINGER/PLENUM PUBLISHERS. ISSN 1573-6687
When do high-income earners get 'on board' with the fiscal contract and accept paying a larger share of the tax burden? Progressive taxes perform particularly poorly in developing countries. We argue that the common opposition of the affluent to more progressive taxation is not merely connected to administrative limitations to coercively enforce compliance, but also to the uncertainty that high-income earners associate with the returns to taxes. Because coercion is not an option, there is a need to convince high-income earners to 'invest' in the public system via taxes. Trust in institutions is decisive for the fiscal contract. Expecting that paid contributions will be used in a sensible manner, high-income earners will be more supportive of progressive income taxation. We study tax composition preferences of a cross-section of Latin American countries using public opinion data from LAPOP for 2012. Findings reveal that higher levels of trust in political institutions strongly mitigate the opposition of the affluent towards more progressive taxation.
AbstractWhen do high-income earners get 'on board' with the fiscal contract and accept paying a larger share of the tax burden? Progressive taxes perform particularly poorly in developing countries. We argue that the common opposition of the affluent to more progressive taxation is not merely connected to administrative limitations to coercively enforce compliance, but also to the uncertainty that high-income earners associate with the returns to taxes. Because coercion is not an option, there is a need to convince high-income earners to 'invest' in the public system via taxes. Trust in institutions is decisive for the fiscal contract. Expecting that paid contributions will be used in a sensible manner, high-income earners will be more supportive of progressive income taxation. We study tax composition preferences of a cross-section of Latin American countries using public opinion data from LAPOP for 2012. Findings reveal that higher levels of trust in political institutions strongly mitigate the opposition of the affluent towards more progressive taxation.
In 2015 the global community committed itself to an ambitious programme of reform. Achieving the Sustainable Development Goals and implementing the resolutions of the Paris climate conference require that great efforts are made – including those of a financial nature. Many states will have to ensure that untapped or barely used sources of income are developed. Sub-national units such as provinces, departments, districts, and cities will play an increasing role in the mobilisation of public revenues. They are also in the forefront with regard to realisation of the global reform agenda, as many of the objectives concern classic areas of activity of local government: schools, basic medical care, local road construction, public transport, construction of social housing, the supply of drinking water and disposal of waste water, refuse collection etc. These services are already the responsibility or co-responsibility of sub-national units. The mobilisation of revenues at sub-national level is therefore not only a financial necessity, it is also prudent from a development policy perspective: if the users and funders of a good match, there is a greater likelihood that the preferences of citizens will be observed and the use of funds monitored. In addition, local taxes and levies are often paid by a broad circle of citizens and companies. This serves to strengthen the relationship between governments and the governed. One thing should be clear in this: although many countries will exploit the scope for collecting local taxes and levies in the future, this potential is nevertheless limited. Many sub-national units will remain dependent on transfer payments from the central state. Cities, districts and the middle tier cannot solve the funding problem of the states on their own. However, they can help to place the provision of public services on a broader foundation of legitimacy and, in co-operation with the national level – for example via the exchange of information – improve fiscal policy as a whole. Consequently, they also contribute to overcoming problems of fragile statehood.
Im Jahr 2015 hat sich die Weltgemeinschaft einem ehrgeizigen Reformprogramm verschrieben. Um die Sustainable Development Goals zu erreichen und die Beschlüsse der Klimakonferenz von Paris umzusetzen, sind gewaltige Anstrengungen erforderlich – auch solche finanzieller Natur. Viele Staaten werden dafür Sorge tragen müssen, bisher nicht oder kaum genutzte Einnahmequellen zu erschließen. Zur Mobilisierung öffentlicher Einnahmen werden subnationale Einheiten – Provinzen, Departments, Distrikte, Städte und Gemeinden – einen wachsenden Beitrag leisten. Sie stehen ohnehin an vorderster Front bei der Umsetzung der globalen Reformagenda, denn viele Ziele betreffen klassische Aufgabenfelder lokaler Regierung: Schulen, medizinische Grundversorgung, lokaler Straßenbau, öffentlicher Transport, sozialer Wohnungsbau, Trinkwasserver- und Abwasserentsorgung, Müllabfuhr usw. Diese Leistungen liegen bereits heute in der Verantwortung oder zumindest der Mitverantwortung subnationaler Einheiten. Die Mobilisierung von Eigeneinnahmen auf den subnationalen Ebenen ist darum nicht nur eine finanzielle Notwen digkeit, sie ist auch ein Gebot entwicklungspolitischer Vernunft: Wenn Nutzer und Zahler eines Gutes übereinstimmen, besteht eine größere Wahrscheinlichkeit, dass die Präferenzen der Bürger Beachtung finden und die Verwendung der Mittel kontrolliert wird. Hinzu kommt: Lokale Steuern und Abgaben werden oft von einem breiten Kreis von Bürgern und Unternehmen getragen. Das stärkt die Beziehungen zwischen Regierungen und Regierten. Dabei muss eines klar sein: Auch wenn viele Länder die Spielräume zur Erhebung lokaler Steuern und Abgaben in Zukunft stärker ausschöpfen werden, ist dieses Potenzial in der Summe gleichwohl begrenzt. Viele subnationale Einheiten werden weiterhin von zentralstaatlichen Transferzahlungen abhängig bleiben. Städte, Gemeinden und mittlere Ebenen können für sich genommen das Finanzierungsproblem der Staaten nicht lösen. Sie können aber dazu beitragen, die Bereitstellung öffentlicher Leistungen auf eine breitere Legitimitätsgrundlage zu stellen und im Verbund mit der nationalen Ebene – z.B. durch den Austausch von Informationen – die Fiskalpolitik insgesamt zu verbessern. Damit leisten sie auch Beiträge zur Überwindung von fragiler Staatlichkeit.
Social cohesion is an important precondition for peaceful and economically successful societies. The question of how societies hold together and which policies enhance social cohesion has become a relevant topic on both national and international agendas. This Briefing Paper stresses the contribution of revenue collection and social policies, and in particular the interlinkages between the two.It is evident that revenue mobilisation and social policies are intrinsically intertwined. It is impossible to think carefully about either independently of the other. In particular, revenue is needed to finance more ambitious social policies and allow countries to reach goals, such as those included in the 2030 Agenda for Sustainable Development. Similarly, better social policies can increase the acceptance of higher taxes and fees. Furthermore, and often underestimated, a better understanding of the interlinkages between revenue generation and social policies can provide a significant contribution to strengthening social cohesion – in particular, concerning state–citizen relationships.In order to shed light on these interlinkages, it is useful to have a closer look at the concept of the "fiscal contract", which is based on the core idea that governments exchange public services for revenue. Fiscal contracts can be characterised along two dimensions: (i) level of endorsement, that is, the number of actors and groups that at least accept, and ideally proactively support, the fiscal contract, and (ii) level of involvement, that is, the share of the population that is involved as taxpayer, as beneficiary of social policies or both. In many developing countries, either because of incapacity or biased state action towards elite groups, the level of involvement is rather low.Given the common perception that policies are unjust and inefficient, in many developing countries the level of endorsement is also low. It is precisely in these contexts that interventions on either side of the public budget are crucial and can have a significant societal effect beyond the fiscal realm.We argue that development programmes need to be especially aware of the potential impacts (negative and positive) that work on revenue collection and social policies can have on the fiscal contract and beyond, and we call on donors and policy-makers alike to recognise these areas as relevant for social cohesion. We specifically identify three key mechanisms connecting social policies and revenue collection through which policy-makers could strengthen the fiscal contract and, thereby, enhance social cohesion:Increasing the effectiveness and/or coverage of public social policies. These interventions could improve the perceptions that people – and not only the direct beneficiaries – have of the state, raising their willingness to pay taxes and, with that, improving revenues.Broadening the tax base. This is likely to generate new revenue that can finance new policies, but more importantly it will increase the level of involvement, which will have other effects, such as increasing government responsiveness and accountability in the use of public resources.Enhancing transparency. This can stimulate public debate and affect people's perceptions of the fiscal system. In order to obtain this result, government campaigns aimed at diffusing information about the main features of policies realised are particularly useful, as are interventions to improve the monitoring and evaluation system.
