Taxation and credible commitment left, right, and partisan turnover

Comparative Politics

Volumn 42, Issue 2, 2010, Pages 207-227

  Timmons, Jeffrey F ^a  

^a NONE

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EID: 77749336614     PISSN: 00104159     EISSN: None     Source Type: Journal    
DOI: 10.5129/001041510X12911363509558     Document Type: Article

References (51)

1. For the redistribution hypothesis, see, for example, John D. Stephens, The Transition from Capitalism to Socialism (Urbana-Champaign: University of Illinois Press, 1979 [1986]);
2. Walter W. Korpi, The Democratic Class Struggle (London: Routledge and Kegan Paul, 1983);
3. Carles Boix, Political Parties, Growth, and Equality: Conservative and Social Democratic Strategies in the World Economy (New York: Cambridge University Press 1998); and
4. Torben Iversen and David Soskice, "Electoral Institutions and the Politics of Coalitions: Why Some Democracies Redistribute More than Others," American Political Science Review, 100 (April 1006): 165-81.
5. For the fiscal contract literature, see Robert H. Bates and Donald D. Lien, "A Note on Taxation, Development, and Representative Government," Politics & Society, 14 (1985): 53-70;
6. Margaret Levi, Of Rule and Revenue (Berkeley: University of California Press, 1988); and
7. Jeffrey F. Timmons, "The Fiscal Contract: States, Taxes and Public Services," World Politics, 57 (October 2005): 530-567
8. The countries are Austria (AUS), Australia (AUL), Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Sweden (SWE), Switzerland (SWZ), United Kingdom, and the United States.
9. Readers may also remember Torben Iversen's (surprising?) finding that partisanship has no permanent effect on social spending within countries; the results herein show that parties matter once we account for turnover. Iversen, Capitalism, Democracy and Welfare (Cambridge, UK: Cambridge University Press, 2005).
10. Stephens, Capitalism to Socialism; Boix, Political Parties; and David Bradley et al., "Distribution and Redistribution in Post-industrial Democracies," World Politics, 55 (April 2003): 193-228.
11. Isabela Mares, The Politics of Social Risk: Business and Welfare State Development (New York: Cambridge University Press, 2003);
12. Alexander Hicks and Duane Swank, "Politics, Institutions, and Welfare Spending in Industrialized Democracies, 1960-1982," American Political Science Review, 86 (September 1992): 658-674
13. One notable exception to the rule whereby spending is conflated with redistribution is Alexander Hicks and Duane Swank, "Governmental Redistribution in Rich Capitalist Democracies," Policy Studies Journal, 10 (December 1984): 264-87.
14. Several recent studies (e.g. Iversen and Soskice and Bradley et al.) use microdata from the Luxembourg Income Studies (LIS, http://www.lisproject.org/ keyfigures/metnods.hrm) to make similar claims. Since LIS data are top-coded and do not include indirect taxes, they do not accurately capture taxes for top and bottom income groups.
15. In the 2000 LIS survey for the United States, for example, the highest income tax paid by a household was roughly US$400,000; in actuality, the top 15,000 taxpayers paid an average of USS10M each in 1995 (my calculations using data from the Internal Revenue Service (IRS Data Book, FY 2002, Publication 55b, Washington, DC, 2002) and Daniel R. and James M. Poterba, "The Income and Tax Share of Very High Income Households, 1960-1995," (Cambridge, MA: National Bureau of Economic Research Working Paper 7525, 2000).
16. Sven Steinmo, Taxation and Democracy: Swedish, British and American Approaches to Financing the Modern State (New Haven, CT: Yale University Press, 1993).
17. Peter H. Lindert, Growing Public: Social Spending and Economic Growth since the Eighteenth Century (Cambridge, UK: Cambridge University Press, 2004);
18. Junko Kato, Regressive Taxation and the Welfare State (Cambridge, UK: Cambridge University Press, 2003).
19. Adam Przeworski and Michael Wallerstein, "Structural Dependence of the State on Capital," American Political Science Review, 82 (March 1988): 11-29; also see Lindert, Growing Public.
20. Steinmo, Taxation and Democracy; and Lindert, Growing Public.
21. Kato, Regressive Taxation; and Scott J. Basinger and Mark S. Hallerberg, "Remodeling the Competition for Capital: How Domestic Politics Erases the Race to the Bottom," American Political Science Review, 98 (April 2002): 261-276
22. The globalization literature finds that veto players retard convergence on tax policy. See Duane W. Swank and Sven Steinmo, "The New Political Economy of Taxation in Advanced Capitalist Democracies," American Journal of Political Science, 46 (June 2002): 642-55; and Basinger and Hallerberg, "Remodeling the Competition."
23. Adam Wagstaff et al., "Redistributive Effect, Progressivity and Differential Tax Treatment: Personal Income Taxes in Twelve OECD Countries," Journal of Public Economics, 72 (April 1999): 73-98.
24. Massimo Bordignon, "A Fairness Approach to Income Tax Evasion," Journal of Public Economics, 52 (October1993): 345-62.
25. Douglass North, Growth and Structural Change (New York: Norton, 1981). See also, Bates and Lein, "Note on Taxation"; and Levi, OfRule and Revenue.
26. For summaries, see James Andreoni, Brian Erard, and Jonathan Feinstein, "Tax Compliance," Journal of Economic Literature, 36 (June 1998): 818-60;
27. and James Aim, James G. McClelland, and William D. Schulze, "Why Do People Pay Taxes?" Journal of Public Economics, 48 (June 1992): 21-118
28. The phrase "quasi-voluntary compliance" comes from Levi, Of Rule and Revenue.
29. Alex Cuckierman and Mariano Tommasi, "When Does It Take a Nixon to Go to China?" The American Economic Review, 88 (March 1998): 180-197
30. Tax/GDP ratios are supplemented with average effective tax rates (AETR) on factor incomes using the OECD's revised series. For space reasons, those results, as well as a detailed discussion of the strengths and weakness of AETRs, have been confined to the web appendix.
31. A 10 percent VAT in the United States, for example, would take 12 percent of gross income from families earning US$10,000, versus 4 percent for families earning US$100,000, according to Edith Brashares, Janet Speyrer, and George Carlson, "Distributional Aspects of a Federal Value-Added Tax," National Tax Journal, 41 (June 1988): 155-74.
32. See Don Fullerton and Gilbert E. Metcalf, "Tax Incidence," NBER Working Paper No.8829 (Cambridge, MA: NBER) for an overview.
33. Evelyne Huber, Charles Ragin, John D. Stephens, David Brady, and Jason Beckfield, Comparative Welfare Data Set (Northwestern University, University of North Carolina, Duke University, and Indiana University, 2004). Left parties include social democrats and communists. All religious parties are considered Christian Democrats.
34. Huber et al.'s measure of Left is correlated at 0.98 with Armingeon, Gerber, Leimguber, Beyeler, and Menegale's's measure. There are discrepancies with Right and Center since Christian Democratic parties are not separated out in the latter. Klaus Armingeon, Marlène Gerber, Philipp Leimgruber, Michelle Beyeler, and Sarah Menegale, Comparative Political Data Set 1960-2005 (Institute of Political Science, University of Berne, 2007).
35. Since not all seats are classified every year, we create a residual category (other cabinet) for each of the aforementioned measures. The other cabinet category is meaningless since it also includes rounding error (associated with converting fractions to decimals). We estimate all models with the residual category, but exclude it from tables.
36. The three measures have the same minimums and similar means; including more history reduces the maximums and variance (Table 1A in the Appendix). The correlations between the long-run and annual measures are 0.73 for Right Stable; 0.67 for Right Volatile; 0.80 for Left Stable; and 0.60 for Left Volatile.
37. We initially divided the sample into thirds and created three binary dummies of volatility (most, least, intermediate). But the main identifiable break in the data is between the most volatile countries- approximately one standard deviation above the sample's standard deviation-and everyone else. Given the somewhat arbitrary cut-point, we present jackknifed results. Also note that Cusack's data does not include New Zealand. Rather than arbitrarily put it into either category, we coded it as neutral, weighing Left and Right by 0.5, rather than 0 or 1. A table showing the consequences of classifying New Zealand in various ways is available.
38. These tests are consistent with the pooled models in Robert J. Franzese and Cindy T. Kam, Modeling and Interpreting Interactive Hypothesis in Regression Analysis (Ann Arbor: University of Michigan Press, 2007), pp. 109-111
39. Our main interest is taxes. We recognize that corporate share of pre-tax national income is imperfect because corporate profits and taxes could track each other under various circumstances. The implicit assumption is that governments manipulate tax bases, not just tax rates.
40. The Bewley Tranformation employed is detailed in Suzanna De Boef and Luke Keele, "Taking Time Seriously: Dynamic Regression Models," mimeo (Penn State University, 2006).
41. The residual and lagged residuals are generally correlated at less than 0.1.
42. Neal Beck and Jonathan Katz, "Nuisance vs. Substance: Specifying and Estimating Time-Series- Cross-Section Models," Political Analysis, 6 (Winter 1996): 1-36. PCSE are shown; clustered SEs can be found in the appendix on the web.
43. We ran these models with interactions for all partisan categories, but have omitted them to keep the tables manageable. The full table is in the appendix on the web.
44. Including inequality dramatically drops the N, from approximately 500 to approximately 300. With inequality our coefficients and standard errors change dramatically, generally in ways that are favorable to our propositions, especially with corporate taxation. That said, dummy variable regressions (with data, without data) indicate that the changes associated with inequality reflect changes in the sample as much as (if not more than) conditioning on inequality.
45. With the exception of Model 5, the corporate tax models shown include Christian Democrat dominated Italy. When Italy is included, our results are robust as long as corporate profits are not included as a control (i.e., Models 1-3). With Italy and corporate profits our results are rarely significant at conventional levels (Model 4). Italy's mean value for corporate profits/GDP more than two SDs above the OECD mean.
46. The absolute values of the confidence intervals overlap
47. The main discrepancy between the different time frames of partisan influence is the magnitude of the coefficients (rather than their level of significance). More history translates into larger coefficients. We suspect the reason for this difference is that one year provides parties little time to enact policies for their constituents; multiple years, by contrast, allow parties to ramp up benefits.
48. 35. Alexander Hicks and Lane Kenworthy, "Cooperation and Political Economic Performance in Affluent Democratic Capitalism," American Journal of Sociology, 103 (May 1998): 1631-1672 (Pubitemid 128116805)
49. Soonman Kwon and Ian Holliday, "The Korean Welfare State: A Paradox of Expansion in an Era of Globalisation and Economic Crisis," International Journal of Social Welfare, 16 (July 2007): 242-48. OECD, Revenue Statistics.
50. Partisan data from Thorsten Beck et al., "New Tools in Comparative Political Economy: The Database of Political Institutions (2001/2003)," World Bank Economic Review, 15 (September 2001): 165-76.
51. This is obviously not a scientific endeavor since we selected on the dependent variable, but it is worth noting that in terms of country-years there is a rough balance between Left and Right in the DPI data. Excluding the EU, the ratio of Left to Right VATs is 21 to 11 in favor of the Left. A table of countries can be found in the web appendix. VAT data from Liam P. Ebrill et al., The Modern VAT (Washington, DC: The International Monetary Fund, 2001).