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Democracy, Urbanization, and Tax Revenue

Andersson, Per F. LU (2017) In Studies in Comparative International Development
Abstract

During the last two centuries, taxation has not only increased dramatically in level and volume; its structure has also changed: from a heavy reliance on customs revenue in the early nineteenth century to a stronger emphasis on income taxation in the twentieth. A common explanation for this development is the spread of democracy, which supposedly increases redistribution and the size of government. This paper argues that the effect of democratization on taxation depends on the distribution of tax preferences in society. These preferences are not uniform: rural farmers prefer different policies than urban workers. Thus, the impact of democratization varies depending on the urbanization rate. The paper uses a novel dataset providing data... (More)

During the last two centuries, taxation has not only increased dramatically in level and volume; its structure has also changed: from a heavy reliance on customs revenue in the early nineteenth century to a stronger emphasis on income taxation in the twentieth. A common explanation for this development is the spread of democracy, which supposedly increases redistribution and the size of government. This paper argues that the effect of democratization on taxation depends on the distribution of tax preferences in society. These preferences are not uniform: rural farmers prefer different policies than urban workers. Thus, the impact of democratization varies depending on the urbanization rate. The paper uses a novel dataset providing data on government tax revenue in thirty-one countries in Western Europe, the Americas, Australia, New Zealand, and Japan—from as far back as 1800 up to the present day—in order to evaluate the conditional impact of democratization on tax structure. The results show that democracy decreases property taxes in rural countries but instead increases income taxes and decreases excise and consumption taxes in more urbanized states. These results are robust to different estimation methods, a number of control variables, such as interstate warfare, and to alternative measurements of democracy.

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author
organization
publishing date
type
Contribution to journal
publication status
epub
subject
keywords
Democracy, Economic history, Political economy, Taxation
in
Studies in Comparative International Development
pages
40 pages
publisher
Transaction Publishers
external identifiers
  • scopus:85015645898
ISSN
0039-3606
DOI
10.1007/s12116-017-9235-0
language
English
LU publication?
yes
id
5053a70d-b385-40d3-ab65-20ddbe76d18d
date added to LUP
2017-04-05 12:40:58
date last changed
2018-01-07 11:58:08
@article{5053a70d-b385-40d3-ab65-20ddbe76d18d,
  abstract     = {<p>During the last two centuries, taxation has not only increased dramatically in level and volume; its structure has also changed: from a heavy reliance on customs revenue in the early nineteenth century to a stronger emphasis on income taxation in the twentieth. A common explanation for this development is the spread of democracy, which supposedly increases redistribution and the size of government. This paper argues that the effect of democratization on taxation depends on the distribution of tax preferences in society. These preferences are not uniform: rural farmers prefer different policies than urban workers. Thus, the impact of democratization varies depending on the urbanization rate. The paper uses a novel dataset providing data on government tax revenue in thirty-one countries in Western Europe, the Americas, Australia, New Zealand, and Japan—from as far back as 1800 up to the present day—in order to evaluate the conditional impact of democratization on tax structure. The results show that democracy decreases property taxes in rural countries but instead increases income taxes and decreases excise and consumption taxes in more urbanized states. These results are robust to different estimation methods, a number of control variables, such as interstate warfare, and to alternative measurements of democracy.</p>},
  author       = {Andersson, Per F.},
  issn         = {0039-3606},
  keyword      = {Democracy,Economic history,Political economy,Taxation},
  language     = {eng},
  month        = {03},
  pages        = {40},
  publisher    = {Transaction Publishers},
  series       = {Studies in Comparative International Development},
  title        = {Democracy, Urbanization, and Tax Revenue},
  url          = {http://dx.doi.org/10.1007/s12116-017-9235-0},
  year         = {2017},
}