Taxation and Credible Commitment: Left, Right and Partisan Turnover
Comparative Politics, Forthcoming
44 Pages Posted: 27 Aug 2008 Last revised: 31 Jan 2010
Date Written: May 18, 2008
Building on the fiscal contract literature, this paper argues that taxation is partly a game of credible commitment. Using data for 18 OECD countries, it shows that partisan turnover systematically affects the long-run equilibrium mix of taxes and services. When partisan turnover is low, more right-wing influence permanently increases corporate tax revenue and the corporate share of pre-tax income; more left-wing influence, by contrast, permanently increases consumption tax revenue and social spending. When turnover is high, even powerful partisans do not increase taxes that disproportionately affect their supporters. When partisans tax their own supporters, they raise more revenue, even when we account for some plausible benefits. Our theoretical conjectures are consistent with the pattern of partisan behavior within countries, not just between them.
Keywords: taxes, parties, left, right, social spending, redistribution
JEL Classification: H11, H25
Suggested Citation: Suggested Citation