Dictators Don’t Compete: Autocracy, Democracy, and Tax Competition. CES Open Forum Series #22 2018-2019

It pays to be a tax haven. Ireland has become rich that way. Why do not all countries follow the Irish example, cut their capital taxes and get wealthy? One reason is structural. As the economic standard model of tax competition explains, small countries gain from competitive tax cuts while large countries suffer. Yet not all small (large) countries have low (high) capital taxes. Why? The reason, we argue, is political. While the economic standard model implicitly assumes competing governments to be democratic, more than a third of countries world-wide are non-democratic. We explain theoretically why autocracies are less likely to adjust to competitive constraints and test our argument empirically against data on the corporate tax policy of 99 countries from 1999 to 2011. Our findings shed light on how domestic institutions and global markets interact in economic policy making

Tax competition and inequality

The baseline model of international tax competition predicts that domestic income inequality will increase: in the worst case progressive taxation on capital is no longer possible and spending levels deteriorate. Given that the median voter is receiving her income mostly from labor, many observers are puzzled that corporate tax competition persists among developed democracies. Even during the economic crisis, hard-hit countries such as Ireland insisted to keep their low corporate tax rate despite pressure from other European countries and with a broad backing of the whole political spectrum. Why do left-wing parties not intervene and call for international tax harmonization if tax competition is detrimental for the poor? It is the aim of this paper to explain the driving forces of tax competition and their consequences on inequality. Specifically, we shed light on why the poor and their representatives in smaller economies have not done much against tax competition. To do so we first build a theoretical model based on asymmetric tax competition in two countries, which we then test empirically. In our model the median voter in both countries is poor; thus the left determines the domestic capital tax rate. Nevertheless, in equilibrium tax competition persists. We show that the rich and the poor of the small country can achieve a higher net income when engaging in international tax competition. This explains why tax competition is politically robust even in a model where the rich have no power over the tax rate. We test the empirical implications of our model against a sample of eight OECD countries and their tax policies over a long time frame from 1960 until today. In conclusion, we discuss the crucial implication from accepting a lower capital tax rate, namely increased domestic and international income inequality

Erhebung und Nutzung unstrukturierter Daten in den Sozial-, Verhaltens- und Wirtschaftswissenschaften

Die zunehmende Digitalisierung unserer Lebenswelt in den letzten Jahrzehnten hat zu einer Reihe von neuen Datenquellen für die Sozial-, Verhaltens- und Wirtschaftswissenschaften geführt. Hierzu gehören vor allem auch unstrukturierte Daten, die sich dadurch auszeichnen, dass sie nicht in Form eines festen Datenformats vorliegen und daher nicht einfach datenanalytisch weiterverarbeitet werden können (z.B. Facebook-Texte, Instagram-Bilder, YouTube-Videos, Twitter-Nachrichten). Die Nutzung unstrukturierter Daten ist mit spezifischen Herausforderungen verknüpft, die gerade dadurch entstehen, dass die Daten typischerweise nicht in einer kontrollierten wissenschaftlichen Studie erhoben werden, sondern häufig im natürlichen Lebensumfeld anfallen. Aufbauend auf den Ergebnissen eines Expert:innen-Workshops werden die spezifischen Herausforderungen bei der Erhebung und Nutzung unstrukturierter Daten beschrieben und Empfehlungen formuliert. Diese orientieren sich am Total Error Framework und beziehen sich auf die Datengenerierung (Definition von Untersuchungseinheiten, Coverage und Sampling Error, Nonresponse und Missing Data Error), die Datenaufbereitung (Spezifikationsfehler, Validität, Messfehler und inhaltliche Fehler) sowie die Datenanalyse (Record Linkage und Verarbeitungsfehler, Modellierungsfehler, analytische Fehler). Abschließend werden offene Fragen und Herausforderungen bei der Forschung mit unstrukturierten Daten diskutiert. Der Output richtet sich einerseits an Studierende sowie Forschende der Sozial-, Verhaltens- und Wirtschaftswissenschaften, andererseits an alle, die mit unstrukturierten Daten arbeiten und Schlüsse aus diesen für praktische Anwendungsfragen ziehen

Taxation and redistribution in autocratic and democratic regimes over the long-run of history

The introduction of the personal income tax has often coincided with phases of democratization in history. A common explanation is that the demands of the newly enfranchised poor contribute to the rise of progressive taxes. Yet, although the world has, on average, become more democratic since the first permanent introduction of the income tax in Great Britain in 1842, inequality is again on the rise. To what extent do democratic societies really adopt more redistributive policies than their autocratic counterparts? In this paper, we shed light on the link between regime type and redistribution based on a new historical and global dataset of first permanent tax legislations. We compare the introduction of two direct progressive taxes, namely the inheritance tax and the personal income tax, with the introduction of two indirect taxes, the general sales and the value added tax. Whereas regime type has no influence on tax introduction in general, democracies are more likely to adopt progressive taxation

Happy taxation : increasing tax compliance through positive rewards?

Published online: 15 October 2015.Can governments increase tax compliance by rewarding honest taxpayers? We conducted a controlled laboratory experiment comparing tax compliance under a “deterrence” baseline with tax compliance under two “reward” treatments: a “donation” treatment giving taxpayers a say in the spending purposes of their payments and a “lucky” treatment giving taxpayers the (highly unlikely) chance of winning a lottery. The reward treatments significantly affected tax behaviour but not in a straightforward manner. Although female participants altered their behaviour as expected and complied somewhat more, men strongly reacted in the opposite manner: they evaded a much higher percentage of taxes than under the baseline. Apparently, there is no one-size-fits-all approach to boost tax compliance

The political economy of foreign aid collection : arguments and applications

The essential purpose of foreign aid is to reduce poverty and to help millions of people in the developing world. Yet, already the Marshall Plan demonstrates that donor governments frequently use development assistance as a foreign policy tool in order to promote their interests at the international stage. This ambivalence points to the need for a clear understanding of aid allocation, also as starting point for a better comprehension how aid affects development. Furthermore, the study of foreign aid allocation is not only fundamental for our knowledge on aid effectiveness, but also allows insights into the foreign policy preferences of rich governments toward the developing world. In order to address this, the following thesis highlights the importance of foreign aid as a foreign policy tool and illus- trates in three substantial chapters how developed states use financial assistance to buy policy concessions from developing countries. In this context, the author first contrasts the official aid doctrine with the actual, more hidden agenda over the last six decades, and also emphasizes important av- enues for further research. Second and by building upon existing research, the dissertation shows how donor governments strategically distinguish between con- ditional and unconditional aid to support more democratic developing countries that face political turmoil. Third, the thesis focuses on the public and private good aspects of aid, and explores how foreign aid might be used for access to raw materials - a case with potentially clear negative externalities to other donors. It is argued that donor governments allocate more aid to possible trading partners in mineral ores to secure their companies access to these resources. Against this background, the theoretical and empirical analyses of donors' aid allocation behavior illustrate that donor governments use foreign aid as a policy tool to further their very own interests in developing countries. Yet, this may not necessarily be detrimental to recipient needs. With the increasing international integration and the rise of more, heterogeneous donor countries, recipients become ever more important. Consequently, also the political economy of foreign aid.EThOS - Electronic Theses Online ServiceGBUnited Kingdo

Did they learn to tax? : taxation trends outside the OECD

We map trends of tax policy change in developing countries and transition economies since the 1980s, compare them to tax trends in the advanced Western democracies and review some of the explanations offered by the contributions to this volume. We find that non-Western countries follow the lead of Western countries in some important respects but not in others. While non-Western countries brought their general revenues closer to Western levels and copied important features of Western consumption taxation including higher value added tax revenues and lower revenues from trade taxation, they failed to emulate the hallmark of 20th-century Western taxation: a strong and progressive personal income tax. The taxation trends are closely associated with socio-economic changes (as summarized by GDP per capita) and structural factors (as summarized by country size). Yet the impact of political institutions on taxation is non-linear and complex

Globalization and tax policy

How does economic globalization affect national taxation? According to the conventional wisdom in political economy, it increases fiscal stress by exposing citizens to new economic risks and thus driving up voters’ demand for social protection (the so-called compensation thesis) and/or by triggering a competitive race to the bottom that undermines governments’ ability to fund social protection (the so-called efficiency thesis). We show that economic globalization can also have the reverse effect. It can also mitigate fiscal stress by providing additional revenues for national treasuries and relaxing demands for social compensation—but only in some countries. While economic integration significantly affects fiscal policy everywhere, it does not do so evenly and equally. There are winners and losers. We discuss the mediating effects of three domestic factors: country size, regime type, and state capacity. We show that the fiscal winners of economic globalization are generally small, well-governed democracies. We conclude by illustrating the theoretical and political implications of our argument

Tax introduction database (TID)

1 data file; 5 documentation filesThe Tax Introduction Dataset (TID) consists of data on the year of the first permanent introduction at the national level of government of six major taxes, as well as on the top statutory tax rate for that year. The six taxes are the personal income tax (PIT), the corporate income tax (CIT), the inheritance tax (INH), compulsory social security contributions (SSC), the general sales tax (GST), and the value added tax (VAT). The dataset covers 220 former and current countries worldwide. Countries are independent states with full sovereignty over domestic and fiscal affairs that existed at any point between 1750 and 2018. For each country the dataset reports whether the tax introduction was preceded by the introduction of the same tax at the subnational level. For each country that did not introduce a tax, the dataset reports whether the country inherited that tax from its historical predecessor (i.e. from a colonial power or other state that the country historically gained its independence from) or was simply never introduced. Each entry is linked to a source. Wherever possible, contextual information is provided in a comment section accompanying each data entry