Hostname: page-component-848d4c4894-x5gtn Total loading time: 0 Render date: 2024-06-04T09:24:04.463Z Has data issue: false hasContentIssue false
  • English
  • Français

How do political institutions affect fiscal capacity? Explaining taxation in developing economies

Published online by Cambridge University Press:  10 April 2018

ROBERTO RICCIUTI ,
ANTONIO SAVOIA  and
KUNAL SEN
ROBERTO RICCIUTI
Affiliation:
Dipartimento di Scienze Economiche, Università degli Studi di Verona, Verona, Italy
ANTONIO SAVOIA*
Affiliation:
Global Development Institute (GDI), University of Manchester, Manchester, United Kingdom
KUNAL SEN
Affiliation:
Global Development Institute (GDI), University of Manchester, Manchester, United Kingdom
*
*Email: Antonio.Savoia@manchester.ac.uk
Get access Rights & Permissions [Opens in a new window]

Abstract

A central aspect of institutional development in developing economies is building tax systems capable of raising revenues from broad tax bases, i.e. fiscal capacity. While it is recognised that fiscal capacity is pivotal for state building and economic development, it is less clear what its origins are and what explains its cross-country differences. We focus on political institutions, seen as stronger systems of checks and balances on the executive. Exploiting a recent database on public sector performance in developing economies and an IV strategy, we estimate their long-run impact, distinguishing between the accountability and transparency of fiscal institutions (impartiality) and their effectiveness in extracting revenues. We find that stronger constraints on the executive foster the impartiality of tax systems. However, there is no robust evidence that they also improve its effectiveness. Our findings also suggest that the overall impact on both total tax revenues and income tax is economically relevant.

Type
Research Article
Information
Journal of Institutional Economics , Volume 15 , Issue 2 , April 2019 , pp. 351 - 380
Copyright
Copyright © Millennium Economics Ltd 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Acemoglu, D. (2005), ‘Constitutions, Politics, and Economics: A Review Essay on Persson and Tabellini's The Economic Effects of Constitutions’, Journal of Economic Literature, 43: 1025–48.Google Scholar
Acemoglu, D., Johnson, S., and Robinson, J. A. (2001), ‘The Colonial Origins of Comparative Development: An Empirical Investigation’, American Economic Review, 91 (5): 1369–401.Google Scholar
Acemoglu, D. and Robinson, J. A. (2009), Economic Origins of Dictatorship and Democracy, Cambridge: Cambridge University Press.Google Scholar
Acemoglu, D., Johnson, S., Robinson, J. and Thaicharoen, Y. (2003), ‘Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth’, Journal of Monetary Economics, 50 (1): 49–123.Google Scholar
Albouy, D. Y. (2012), ‘The Colonial Origins of Comparative Development: An Empirical Investigation: Comment’, American Economic Review, 102 (6): 3059–76.Google Scholar
Andrews, M. (2011), ‘Which Organizational Attributes Are Amenable to External Reform? An Empirical Study of African Public Financial Management’, International Public Management Journal, 14 (2): 131–56.Google Scholar
Bates, R. H. and Lien Da-Hsiang, D. (1985), ‘A Note on Taxation, Development, and Representative Government’, Politics & Society, 14 (1): 53–70.Google Scholar
Baum, C. F., Schaffer, M. E. and Stillman, S. (2007), ‘Enhanced Routines for Instrumental Variables/Generalized Method of Moments Estimation and Testing’, Stata Journal, 7 (4): 465–506.Google Scholar
Besley, T., and Persson, T. (2014), ‘Why Do Developing Countries Tax So Little?’ Journal of Economic Perspectives, 28 (4): 99–120.Google Scholar
Besley, T. and Persson, T. (2011). Pillars of Prosperity: The Political Economics of Development Clusters, Princeton, NJ: Princeton University Press.Google Scholar
Besley, T. and Persson, T. (2009). ‘The Origins of State Capacity: Property Rights, Taxation, and Politics’, American Economic Review, 99 (4): 1218–44.Google Scholar
Besley, T. and Persson, T. (2013), ‘Taxation and Development’, in Auerbach, A., Chetty, R., Feldstein, M. and Saez, E. (eds) Handbook of Public Economics, Amsterdam: Elsevier.Google Scholar
Bockstette, V., Chanda, A. and Putterman, L. (2002), ‘States and Markets: The Advantage of an Early Start’, Journal of Economic Growth, 7 (4): 347–69.Google Scholar
Brautigam, D., Fjeldstad, O. H., and Moore, M. (2008), Taxation and State-Building in Developing Countries: Capacity and Consent, Cambridge: Cambridge University Press.Google Scholar
Cameron, A. C. and Trivedi, P. K. (2005), Microeconometrics: Methods and Applications, Cambridge: Cambridge University Press.Google Scholar
Centeno, M. A., Kohli, A., and Yashar, D. J. (2017), ‘Unpacking states in the developing world: capacity, performance, and politics’, in Centeno, M. A., Kohli, A. and Yashar, D. J. (eds) States in the Developing World, Cambridge: Cambridge University Press.Google Scholar
Charron, N., Dahlström, C. and Lapuente, V. (2012), ‘No Law without a State’, Journal of Comparative Economics, 40 (2): 176–93.Google Scholar
Cheibub, J. A. (1998), ‘Political Regimes and the Extractive Capacity of Government Taxation in Democracies and Dictatorships’, World Politics, 50 (3): 349–76.Google Scholar
D'Arcy, M. (2012), ‘Taxation, Democracy and State-Building: how does sequencing matter?’ Quality of Government Working Paper Series 2012:4, University of Gothenburg.Google Scholar
Dincecco, M. (2017) State Capacity and Economic Development: Present and Past, Cambridge: Cambridge University Press.Google Scholar
Dincecco, M. and Katz, G. (2016), ‘State Capacity and Long-run Economic Performance’, Economic Journal, 126 (590): 189–218.Google Scholar
Doerrenberg, P. and Peichl, A. (2013), ‘Progressive Taxation and Tax Morale’, Public Choice, 155 (3–4): 293–316.Google Scholar
Fukuyama, F. (2004). ‘The Imperative of State-Building’, Journal of Democracy, 15 (2): 17–31.Google Scholar
Fuller, W. A. (1977), ‘Some Properties of a Modification of the Limited Information Estimator’, Econometrica 45 (4): 939–54.Google Scholar
Grabowski, R. (2008), ‘Modes of Long-run Development: Latin America and East Asia’, Journal of Institutional Economics, 4 (1): 25–50.Google Scholar
Hahn, J., Hausman, J., and Kuersteiner, G. (2004), ‘Estimation with Weak Instruments: Accuracy of Higher-order Bias and MSE Approximations’, Econometrics Journal, 7: 272–306.Google Scholar
Hanson, J. K. and Sigman, R. (September 2013). ‘Leviathan's Latent Dimensions: Measuring State Capacity for Comparative Political Research’. APSA 2011 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1899933, retrieved on 5 March 2018.Google Scholar
Herbst, J. I. (2000), States and Power in Africa: Comparative Lessons in Authority and Control, Princeton, NJ: Princeton University Press.Google Scholar
ICTD – International Centre for Tax and Development (2015), Government Revenue Dataset 2015, available at www.ictd.ac/en/node/436/, retrieved on 1 October 2015.Google Scholar
Isham, J., Woolcock, M., Pritchett, L., and Busby, G. (2005), ‘The Varieties of Resource Experience: Natural Resource Export Structures and the Political Economy of Economic Growth’, World Bank Economic Review, 19 (2): 141–74.Google Scholar
Kohli, A. (2009), ‘States and Economic Development’, Brazilian Journal of Political Economy, 32 (4): 212–27.Google Scholar
Johnson, N. D. and Koyama, M. (2017), ‘States and Economic Growth: Capacity and Constraints’, Explorations in Economic History, 64: 1–20.Google Scholar
Levi, M. (1988), Of Rule and Revenue, Berkeley: University of California Press.Google Scholar
Lieberman, E. S. (2002), ‘Taxation Data as Indicators of State–Society Relations: Possibilities and Pitfalls in Cross-National Research’, Studies in Comparative International Development, 36 (4): 89–115.Google Scholar
Luttmer, E. F. P. and Singhal, M. (2014), ‘Tax Morale’, Journal of Economic Perspectives, 28 (4): 149–68.Google Scholar
Marshall, M. G., Jaggers, K., and Gurr, T. R. (2011), Polity IV Project: Dataset Users’ Manual, Polity IV Project. Vienna, VA: Center for Systemic Peace.Google Scholar
Martin, I. W. and Prasad, M. (2014), ‘Taxes and Fiscal Sociology’, Annual Review of Sociology, 40 (4): 331–45.Google Scholar
Moore, M. (2007), ‘How Does Taxation Affect the Quality of Governance?’ IDS Working Paper 280, Brighton: Institute of Development Studies.Google Scholar
North, D. C. and Weingast, B. R. (1989), ‘Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England’, Explorations in Economic History, 44 (4): 803–32.Google Scholar
Olson, M. (1993), ‘Dictatorship, Democracy and Development’, American Political Science Review, 87 (3): 567–76.Google Scholar
Osafo-Kwaako, P. and Robinson, J. A. (2013), ‘Political Centralization in pre-colonial Africa’, Journal of Comparative Economics, 41 (1): 6–21.Google Scholar
PEFA (2006), Public Expenditure and Financial accountability (PEFA) Performance Measurement Framework, available at https://pefa.org/content/pefa-framework, retrieved on 5 March 2018.Google Scholar
Prichard, W. (2010), ‘Taxation and State Building: Towards a Governance Focused Tax Reform Agenda’, IDS Working Paper 341, Brighton: Institute of Development Studies, available at www.ids.ac.uk/files/dmfile/Wp341.pdf, retrieved on 5 March 2018.Google Scholar
Ricciuti, R., Savoia, A. and Sen, K. (2018). ‘What Determines Administrative Capacity In Developing Countries?’ WIDER Working Paper 2018/13. Helsinki: UNUWIDER.Google Scholar
Savoia, A. and Sen, K. (2015), ‘Measurement, Evolution, Determinants and Consequences of State Capacity: A Review of Recent Research’, Journal of Economic Surveys, 29 (3): 441–58.Google Scholar
Schumpeter, J. A. (1917/18), ‘The Crisis of the Tax State’, International Economic Papers, 4 (5): 5–38.Google Scholar
Shleifer, A. and Vishny, R. W. (1993), ‘Corruption’, Quarterly Journal of Economics, 108 (3): 599–617.Google Scholar
Soifer, H. and Vom Hau, M. (2008). ‘Unpacking the Strength of the State: The Utility of State Infrastructural Power’, Studies in Comparative International Development, 43 (3/4): 219–30.Google Scholar
Staiger, D. and Stock, J. H. (1997), ‘Instrumental Variable Regression with Weak Instruments’, Econometrica, 65 (3): 557–86.Google Scholar
Tilly, C. (1990). Coercion, Capital, and European States, AD 990–1990, Oxford: Blackwell.Google Scholar
Timmons, J. F. (2010), ‘Taxation and Representation in Recent History’, Journal of Politics, 72 (1): 191–208.Google Scholar
World Bank (2013), World development Indicators, Washington D.C. Available at https://data.worldbank.org/data-catalog/world-development-indicators, retrieved on 5 March 2018.Google Scholar