Partisanship and taxation: An exploratory study of crisis responses

With the outbreak of the financial crisis in 2008, European governments extensively intervened to avert a severe economic recession. Taxation is a crucial instrument to achieve such economic objectives, but it also represents a redistributive tool in democratic societies. Generally, left-wing parties are more supportive of progressive taxes and redistribution than right-wing governments. As a crisis response, one could assume that European governments, especially social-democrats, reinforced a redistributive stance to compensate for the substantial amounts of public money used to bail-out financial institutions. Yet, the internationalisation of capital markets has made it difficult to levy high income taxes as it might cause capital flights, less investments and growth. Based on the tax reforms introduced between 2008 and 2010, the paper explores how European governments mitigated the fiscal stress from the crisis. The findings show that fiscal pressures significantly restrained the policy choices available to governments. -- Mit dem Ausbruch der Wirtschafts- und Finanzkrise in 2008, verabschiedeten die Europäischen Regierungen vielfältige Maßnahmen, um eine langfristige Rezession zu verhindern. Steuern sind ein wichtiges Instrument, um solche wirtschaftspolitischen Zielen zu erreichen, jedoch stellen sie auch ein wichtiges Umverteilungsmittel in demokratischen Gesellschaften dar. Für gewöhnlich sind Parteien des linken Spektrums größere Befürworter von umverteilungspolitischen Maßnahmen und von progressiven Steuern als konservative und liberale Parteien. Als Antwort auf die Krise könnte man somit erwarten, dass Europäische Regierungen, vorzugsweise linke, umverteilungspolitische Maßnahmen verabschieden, besonders da große Mengen an Steuergeldern benötigt wurden, um für finanzielle Institutionen einen Rettungsschirm bereit zu stellen. Die Liberalisierung der Kapitalmärkte erschwert es jedoch, hohe Kapitalsteuern zu erheben, da befürchtet wird, dass dies eine Kapitalflucht, weniger Investitionen und Wachstum zur Folge haben könnte. Anhand der Steuerpolitik, die zwischen 2008 und 2010 eingeführt wurde, geht das Arbeitspapier der Frage nach, mit welchen Reformen Europäische Regierungen den Krisendruck bewältigt haben. Die empirischen Ergebnisse zeigen, dass fiskalpolitischer Druck den politischen Handlungsspielraum von Regierungen erheblich einschränkt.crisis,fiscal stress,economic growth,tax policy,political parties,European Union

The 'European social model' under pressure

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Partisanship and taxation : an exploratory study of crisis responses

With the outbreak of the financial crisis in 2008, European governments extensively intervened to avert a severe economic recession. Taxation is a crucial instrument to achieve such economic objectives, but it also represents a redistributive tool in democratic societies. Generally, left-wing parties are more supportive of progressive taxes and redistribution than right-wing governments. As a crisis response, one could assume that European governments, especially social-democrats, reinforced a redistributive stance to compensate for the substantial amounts of public money used to bail-out financial institutions. Yet, the internationalisation of capital markets has made it difficult to levy high income taxes as it might cause capital flights, less investments and growth. Based on the tax reforms introduced between 2008 and 2010, the paper explores how European governments mitigated the fiscal stress from the crisis. The findings show that fiscal pressures significantly restrained the policy choices available to governments

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

Eine Welt voller Möglichkeiten: Rezension zu "Der Triumph der Ungerechtigkeit: Steuern und Ungleichheit im 21. Jahrhundert" von Emmanuel Saez und Gabriel Zucman

Emmanuel Saez, Gabriel Zucman: Der Triumph der Ungerechtigkeit - Steuern und Ungleichheit im 21. Jahrhundert. Berlin: Suhrkamp 2020. 978-3-518-42935-

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

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

Taxation and inequality : how tax competition has changed the redistributive capacity of nation-states in the OECD

First Online: 10 March 2017Tax policy is of central importance to every state. Without tax revenue, all other government policies, including welfare policies, are bound to fail. In addition to providing the financial basis for the welfare state, the tax system is potentially the most powerful instrument for income redistribution. In this contribution we shed light on the effects of tax competition on economic inequality by mapping the co-development of the changing tax systems and income (re)distribution since the 1980s. We argue that governments’ tax strategies and their effect on inequality are much more complex and heterogeneous than is often acknowledged. Despite the common constraint emanating from global capital markets, governments still have room to manoeuver. The extent to which OECD governments have used this room, however, varies considerably

Cultural Repercussions: Extending Our Knowledge about How Values of Trust and Confidence Influence Tax Structures within Europe

Within a unified Europe that is heading towards ever more harmonization,it is interesting to examine why there exists such diversity in tax regimesamong its countries. Is it possible that some of the decisions pertaining totaxation are based on latent cultural aspects? This study, set in a purelyEuropean context, seeks to analyze tax variations within Europe through thelens of cultural variations. Specifically, how trust, confidence and equalitymatter with regard to tax revenues and tax progressivity. Within this regard,we achieved strong results linking trust and confidence to higher tax revenuesand higher tax progressivity. That is, where trust among societal membersis low and confidence in public institutions is low, regimes opt for low taxrevenues and lenient tax rates. It is argued that where mistrust is high, theissue of income distribution between societal members is likely to stay withinthe private or individual sphere. Conversely, countries with high trust amongsocietal members exhibit higher levels of income distribution by delegatingmore responsibility to public institutions, reflected in higher tax revenues andmore progressive tax structures

Dictators don't compete : autocracy, democracy, and tax competition

It pays to be a tax haven. Ireland has become rich that way. Why do not all countries cut their capital taxes to get wealthy? One reason is structural. As the 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 standard model assumes governments to be democratic, more than a third of countries worldwide 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.German Science Foundation via the Collaborative Research Center [597