Party system institutionalization and reliance on personal income tax in developing countries

von Schiller, Armin
External Publications (2015)

Washington, D.C: Inter-American Development Bank (IDB Working Paper Series 628)

Volltext/Document

This paper explores the effect of party system institutionalization on the relevance of the personal income tax in the tax composition. Based on a fiscal contractualism approach, it is argued that institutionalized political party systems increase the capacity of political actors to credibly commit to fiscal contracts agreed with wealthy taxpayers. Consequently, in countries characterized by institutionalized political party systems wealthy taxpayers accept paying a bigger share of the tax burden, as reflected in a greater relevance of progressive tax types. The analysis of panel data for more than 90 countries from 1990 to 2010 supports this hypothesis, showing that party system institutionalization has an especially significant and strong positive effect on the relevance of the personal income tax where bureaucratic capacity is low. At high levels of bureaucratic capacity the effect disappears. The findings strongly support the claim that, particularly in developing countries, where bureaucratic capacity tends to be limited, taxation is best understood as a problem of credible commitment.

About the authors

Schiller, Armin von

Political Scientist

Schiller

Schiller, Armin von

Political Scientist

Schiller

Further experts

Baumann, Max-Otto

Political Science 

Breuer, Anita

Political Scientist 

Dafe, Florence

Social Scientist 

Dick, Eva

Sociologist and Spatial Planner 

El-Haddad, Amirah

Economy 

Gudibande, Rohan

Economist 

Haldenwang, Christian von

Political Scientist 

Hilbrich, Sören

Economy 

Houdret, Annabelle

Political Scientist 

Kunz, Yvonne

Geography 

Laudage, Sabine

Economy 

Leininger, Julia

Political Scientist 

Mehl, Regine

Political Science 

Müngersdorff, Maximilian

Social Scientist 

Nowack, Daniel

Political Scientist 

Roll, Michael

Sociologist 

Sommer, Christoph

Economist 

Stoffel, Tim

Political Scientist