TAX POLICY AND POLITICS
This chapter explores the relationship between trust and trustworthy institutions. I build on insights from social psychology, behavioural economics and institutional theory and argue that people are inclined to follow rules and behave in ways that are consistent with those rules if the rules themselves are implemented in consis‐ tent and transparent ways. We begin with an examination of why people follow rules in the first place. I argue rule-following behaviour is explained by three basic human motivations: (a) ‘self-interest’, (b) the desire to belong and (c) the need for logical consistency. The chapter then examines why political institutions that implement tax rules and laws fairly and consistently engender higher levels of compliance than institutions that seek to cater to special interests and/or particular constituencies.
Do liberals and conservatives who trust the government have more similar preferences regarding the federal budget than liberals and conservatives who do not? Prior research has shown that the ideological gap over spending increases and tax cuts narrows at high levels of trust in government. We extend this litera- ture by examining whether the dampening effect of trust operates when more difficult budgetary decisions (spending cuts and tax increases) have to be made. Although related, a tax increase demands greater material and ideological sacrifice from individuals than tax cuts. The same logic can be applied to support for spending cuts. We test the trust-as-heuristic hypothesis using measures of revealed budgetary preferences from a pop- ulation-based survey containing an embedded budget simulation. Our findings show that trusting liberals and conservatives share similar preferences toward spending cuts and tax increases, adding an important empiri- cal addendum to a theory based on sacrificial costs.
The existing experimental literature suggests women are more compliant than men when paying taxes but may free ride more when contributing to public goods. It is unclear which effect dominates when paying for public goods through taxation. Experiments conducted in three European countries and the U.S. are used to investigate this issue. The results suggest that women bear a greater burden of the pro- vision of public goods for the parameters in the experiment. The results indicate the gender gap in com- pliance is due to differences in both the extensive and intensive margins.
This essay addresses one of the broadest and most complex issues faced by students of comparative politics: Why do different democracies pursue different public policies?
I address this issue through a comparative examination of the politics and structure of taxation systems in three prominent Western democracies. Despite the paucity of literature that examines taxation from a comparative perspective, taxes provide a peculiarly appropriate arena in which to examine broad comparative questions. Taxation is at the center of ideological debate between left and right in every modern welfare state.Taxation is a critical arena in the politics of who gets what in society and who pays for it in all polities. And, finally, taxes are fundamental to the very size and functioning of government.
Over the past several years there has been a substantial shift in ideas amongst policy elites about the proper role of government in the society and the economy. Though it is extremely difficult, if not impossible to find a corresponding dramatic change in public attitudes, policy elites now appear to believe that government both cannot, and should not, do many of the things that it once did. Ronald Reagan and Margaret Thatcher are no longer in office, but the ideas that were proposed by the Right, appear to now be a growing consensus among elite policy makers – on all sides of the political spectrum – that the state should not do many of the things that it used to do. In other words, the argument is not simply that we cannot do what was once done, but now we ought not do what was once done.
Sven Steinmo | Bucking the Trend? The Welfare State and the Global Economy: The Swedish Case Up Close
The conventional ‘globalization’ thesis predicts that increased factor mobility will reshape political incentives across the world. According to the most dire predictions, capital and labour will flee welfare states in favour of jurisdictions where they will find cheaper employees, less restrictive governmental regulations and lower taxes. This argument specifically suggests that countries with very heavy tax burdens will be the most vulnerable to the competitive forces in the new global economy. Finally, this theory suggests that political leaders in high tax countries will have no alternative other than to reduce tax burdens and ultimately roll back welfare state spending–else they suffer the wrath of profit-maximizing investors and alienated voters.
Duane Swank and Sven Steinmo | The New Political Economy of Taxation in Advanced Capitalist Democracies
We articulate and test an explanation for the remarkable change and conti- nuity in contemporary tax policy in capitalist democracies. We argue that internationalization, domestic eco- nomic change, and budgetary pres- sures each prompt significant changes in tax policy; yet, together, they create a system of constraints on altering the level and distribution of tax burdens. We utilize 1981 to 1995 data from fourteen developed de- mocracies to analyze the determi- nants of taxation. We find that capital mobility and trade are associated
with cuts in statutory corporate tax rates but not with reductions in effec- tive average tax rates on capital in- come. Moreover, we find that capital mobility is negatively associated with the tax components of labor costs. Domestically, structural unemploy- ment leads to reductions in labor and capital taxes while public sector debt and societal needs raise taxes. We conclude with a summary of the new political economy of taxation in capi- talist democracies.
Bo Rothstein and Sven Steinmo | Restructuring the Welfare State: Political Institutions and Policy Change
This volume pursues two basic themes – the first empirical, the second theoretical. Substantively, we are interested in exploring the ways in which modern welfare states have dealt with the challenges offered them at the end of the twentieth century. There are a number of forces that appear to impinge upon and challenge some of the fundamental assumptions and institutions that have been central to the welfare state for at least the last half of the century (Kuhnle 2000; Pierson 2001). Many of these challenges can be captured by the phrase "globalization" but as a number of studies have recently shown, the worst fears (or best hopes) of the "globalization" theorists have not been borne out by the facts.
As shown by the recent crisis, tax evasion poses a significant problem for countries such as Greece, Spain and Italy. While these societies certainly possess weaker fiscal institutions as compared to other EU members, might broader cultural differences between northern and southern Europe also help to explain citizens’ (un)willingness to pay their taxes? To address this question, we conduct laboratory experiments in the UK and Italy, two countries which straddle this North-South divide. Our design allows us to examine citizens’ willing- ness to contribute to public goods via taxes while holding institutions constant. We report a surprising result: when faced with identical tax institutions, redistribution rules and audit probabilities, Italian participants are significantly more likely to comply than Britons. Overall, our findings cast doubt upon “culturalist” arguments that would attribute cross-country differ- ences in tax compliance to the lack of morality amongst southern European taxpayers.
J. D'Attoma et al.| Measuring Budgetary Preferences Using Interactive Budget Simulations: A Holistic Approach
The literature on budget preferences has become increasingly bifurcated with schol- ars studying preferences over spending and revenue as separate outcomes of interest. Certainly, this substantive divide has led to important advancements in explaining spe- cific questions related to each side of the ledger, but the distinction within the field has come at a theoretical and empirical cost. In this paper, we argue that a holistic ap- proach, accounting for spending and revenue preferences, can overcome several existing issues found in the literature. Yet, a major barrier to studying budget preferences in this way lies with traditional methods, such as survey questionnaires. We introduce online interactive budget tools as a flexible, multi-purpose method for scholars to col- lect attitudinal measures on spending and revenue items. We test whether the holistic approach elicits different behaviors than the more singular approaches using data from a 2018 Mechanical Turk survey with an embedded budget tool, and a randomized ex- periment. We make two important contributions. First, we uncover that participants reduce spending less when given both size of the budget compared to when they are given spending separately. On the tax side, there is little variation between treatments, which aligns well with the theory that Americans have quite stable preferences for tax- ation. Secondly, we uncover that our budget tool decreases polarization considerably. Indeed, when given both sides of the budget there are very little differences on taxing and spending between conservatives and democrats.
Studies examining the effects of gender on honesty, deceptive behavior, pro-sociality, and risk aversion, often find significant differences between men and women. The present study contributes to the debate by exploiting one of the largest tax compliance experiments to date in a highly controlled environment conducted in the United States, the United Kingdom, Sweden, and Italy. Our expectation was that the differences between men’s and women’s behavior would correlate broadly with the degree of gender equality in each country. Where social, political and cultural gender equality is greater we expected behavioral differences between men and women to be smaller. In contrast, our evidence reveals that women are significantly more compliant than men in all countries. Furthermore, these patterns are quite consistent across countries in our study. In other words, the difference between men’s and women’s behavior is not significantly different in more gender neutral countries than in more traditional societies.
Andrighetto et al. | Are Some Countries More Honest than Others? Evidence from a Tax Compliance Experiment in Sweden and Italy
This study examines cultural differences in ordinary dishonesty between Italy and Sweden, two countries with different reputations for trustworthiness and probity. Exploiting a set of cross-cultural tax compliance experiments, we find that the average level of tax evasion (as a measure of ordinary dishonesty) does not differ significantly between Swedes and Italians. However, we also uncover differences in national “styles” of dishonesty. Specifically, while Swedes are more likely to be either completely honest or completely dishonest in their fiscal declarations, Italians are more prone to fudging (i.e., cheating by a small amount). We discuss the implications of these findings for the evolution and enforcement of honesty norms.
There can be no gainsaying that at the end of the 20th century America is the world’s leading nation and preeminent power. America’s GNP is now greater than the total GNP of: China, Russia, the United Kingdom, France, Italy, Australia, Canada, Spain, Sweden, Denmark, Austria and Switzerland, combined. It was not simply "luck" that has made the America so rich and powerful. This essay will argue that America’s economic success has been a product of both the incredible resources found in this country and the remarkable ability of the American people to make the most of those resources. Our Constitution, and the First Amendment specifically, have played an enormous role in the evolution of both our land and our culture. As Martin Diamond suggests, it is impossible to understand America without appreciating the formative influence the Constitution has had upon it.
Armin Schäfer et al. | Politics in Age of Austerity: Governing as an Engineering Problem: The Political Economy of Swedish Success
Sweden is once again attracting the attention of scholars and pundits from around the world because of its apparent ability to pull together high levels of economic growth and remarkably egalitarian outcomes. Indeed, in the context of the most recent economic crisis sweeping the globe, Sweden stands out as one of the most successful countries in Europe in terms of fiscal resilience and economic growth. Swedes are clearly very satisfied with their system, one that many consider among the most ‘democratic’ in the world. Certainly fiscal stress, economic com- petition and demographic change are constraining the choices available to leaders in all rich democracies, but it appears that the straightjacket has a much looser fit in Sweden. The quetion is, why?
Many have argued that the increased international mobility of both capital and labor witnessed in recent years will force advanced capitalist democracies to cut taxes and, thus, ultimately roll back their welfare states. This analysis tests this hypothesis through an examination of policy developments in Sweden, the country with the world’s heaviest tax burden and largest social welfare state. The analysis focuses on the history and structure of taxation policy (the policy arena predicted to be most directly affected by globalization). The findings reveal that there have been very important changes in the Swedish welfare state: The tax and spending regimes have been changed less than the globalization thesis predicts. This analysis argues that Sweden has indeed adapted and changed in recent years but finds little support for the more dire thesis that countries like Sweden must abandon their high-tax regimes and/or their generous social welfare systems.
Anyone who witness the current debate on health care reform in the US knows that a (or the) critical constraint on the expansion of public assistance in this area is our inability to raise sufficient funds to finance a comprehensive program–even when over 80% of the American public believe that "the government should insure that no one goes without health care because they cannot afford it" (Gallup 1979' Roper 1994). The case of health care policy is not unusual. The vast majority of public spending programs in America are widely supported by strong majorities of the public, by the politicians who sin on the committees that oversee the particular programs, and by the civiil servants that administer them. It is very clear that Americans do not like the symbol "big government." But when asked about government programs for public roads, public education, the national guard, Aid to Families with Dependent Children, the environment, public health, drugs, crime, space exploration, and virtually every other specific thing that government provides the public, large majorities of Americans say they either like the programs as they are, or want to see them increased.