Taxation and Democratization

40 Pages Posted: 7 Jul 2013

Date Written: July 7, 2013

Abstract

Anecdotal evidence from pre-modern Europe and North America suggests that rulers are forced to become more democratic once they impose a significant fiscal burden on their citizens. One difficulty in testing this “taxation causes democratization” hypothesis empirically is the endogeneity of public revenues. I use introductions of value added taxes and autonomous revenue authorities as sources of quasi-exogenous variation to identify the causal effect of the fiscal burden borne by citizens on democracy. The instrumental variables regressions with a panel of 122 countries over the period 1981-2008 suggest that revenues had on average a mild positive effect on democracy.

Keywords: taxation, democracy, democratic transition, tax innovations

JEL Classification: H20, P14, O23

Suggested Citation

Baskaran, Thushyanthan, Taxation and Democratization (July 7, 2013). Available at SSRN: https://ssrn.com/abstract=2290691 or http://dx.doi.org/10.2139/ssrn.2290691

Thushyanthan Baskaran (Contact Author)

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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