The Political Economy of Taxation
- LAST REVIEWED: 04 May 2015
- LAST MODIFIED: 27 November 2013
- DOI: 10.1093/obo/9780199756223-0083
- LAST REVIEWED: 04 May 2015
- LAST MODIFIED: 27 November 2013
- DOI: 10.1093/obo/9780199756223-0083
Cicero called taxes “the sinews of the state,” pointing to the crucial role they played in the Roman Empire. Others before him and since have expressed similar sentiments. Governmental action requires economic resources, and taxation has been the most common way to acquire them. As Cicero’s well-chosen image suggests, the body politic cannot flex its muscles without taxing the private sector. Although preferred means of taxation have changed over time, governments have always had a variety of tax instruments at their disposal. The modern literature often refers to broad classes of instruments, such as direct or indirect levies, but it also contains a large amount of descriptive material on particular types of taxes, such as those on personal or corporate income. Nor is it always clear what should be called a tax and whether the term should be defined so as to include phenomena such as the deliberate debasement of the currency practiced from time to time by autocratic rulers and democratic governments. History suggests, however, that the choice of and among tax instruments has always been largely a political decision, although economic factors will usually be taken into account. We define the term “political economy of taxation” with reference to the study of such decisions. We focus on that part of the vast literature that tries to explain how fiscal systems and instruments are chosen in a political and institutional context. At the same time, important topics, such as the relation of war to taxation, are also highlighted, even though the relevant literature may not always have a strongly analytical character. This annotated bibliography is not directed to the purely economic analysis of taxation, which still makes up the primary body of the tax literature published by economists, and topics such as tax incidence and excess burden are not dealt with in detail. The focus on the choice of policy instruments under various political and institutional arrangements is made possible by a nascent literature that creates a direct link between collective choice models and the composition of public revenues in democratic countries. Some of these attempts can furthermore be generalized to nondemocratic regimes, and work can be tested empirically in both contexts. The new direction in the field holds great promise, since it allows researchers to link theory and empirical tests in a concrete manner and to give political fiscal analysis a firm foundation.
Taxation, Tax Systems, and Tax Reform
Revenue systems consist of a variety of taxes, with each causing its own set of economic and distributional consequences. In constructing and changing fiscal systems, policymakers must evaluate the size and interaction of such effects. Further complexity is added because each tax has its own structure, including a base on which the levy is imposed, a schedule of rates that is applied to the base, and a series of special provisions, including exemptions and deductions (sometimes called loopholes) that may apply selective rates to components of the base and that may hollow out the base in other ways, thus leading to a divergence between nominal tax rates and the effective rates of tax on a given base. This suggests that a complete political analysis must have the following components: (a) a discussion of the economic effects of particular taxes and how they influence political support, (b) an examination of how political support can be adjusted by varying the combination of taxes and their structure, and (c) an understanding of how support is influenced by the size of overall budgets. Here the major economic ingredients going into a political analysis are provided together with some works offering general background. This section includes three works introducing economic analysis of taxation (Rosen and Gayer 2010; Bénassy-Quéré, et al. 2010; and Salanié 2011), an early classic in the study of tax systems in the world (Musgrave 1969), a discussion of current international variations in revenue systems (Tanzi 2011), as well as research on the treatment of particular groups, such as the rich (Atkinson, et al. 2010) and on new behavioral approaches to fiscal analysis (Congdon, et al. 2011). Economic arguments about tax “reform” (which in a political economy context may be regarded just as “changes” in the tax system) are provided in a mostly nontechnical manner in Slemrod and Bakija 2008. Work on how the economic effects of taxation are evaluated in political terms by political parties and voters is discussed in later sections.
Atkinson, A. B., Thomas Piketty, and Emmanuel Saez. “Top Incomes in the Long Run of History.” In Top Incomes: A Global Perspective. Edited by A. B. Atkinson and Thomas Piketty, 664–757. Oxford: Oxford University Press, 2010.
Summarizes the work of these authors and of others in this and its companion volume (Top Incomes Over the Twentieth Century, Oxford: Oxford University Press, 2007) on the evolution of top incomes around the world over long periods of time. This interesting chapter speculates about the role of progressive taxation, and the role of political economy, in the search for an understanding of the history they document.
Bénassy-Quéré, Agnès, Benoît Cœuré, Pierre Jacquet, and Jean Pisani-Ferry. “Tax Policy.” In Economic Policy: Theory and Practice. By Agnès Bénassy-Quéré, Benoît Cœuré, Pierre Jacquet, and Jean Pisani-Ferry, 537–616. Oxford: Oxford University Press, 2010.
A concise, somewhat more advanced though largely nonmathematical introduction to theory and current policy ideas with respect to taxation, nicely integrated with useful references to data describing contemporary aspects of actual tax systems and their recent evolution in the European Union and in the Organisation for Economic Co-operation and Development (OECD).
Congdon, William J., Jeffrey R. Kling, and Sendhil Mullainathan. “Taxation and Revenue.” In Policy and Choice: Public Finance Through the Lens of Behavioral Economics. By William J. Congdon, Jeffrey R. Kling, and Sendhil Mullainathan, 173–200. Washington, DC: Brookings Institution, 2011.
Provides an introduction to the ways in which behavioral economics is leading to insights about how people adapt to taxation. Also includes some consideration of political economy issues.
Musgrave, Richard A. Fiscal Systems. New Haven, CT: Yale University Press, 1969.
A pioneering study of tax and revenue systems, fiscal development, comparative analysis of tax structure across countries, and political and economic system differences (capitalist versus socialist). It examines specific factors influencing tax structure over time, emphasizing “tax handles.” Written by an important fiscal theorist and empirical researcher of his generation and filled with interesting ideas ahead of their time.
Rosen, Harvey S., and Ted Gayer. Public Finance. New York: McGraw-Hill Higher Education, 2010.
Introduction to public economics for undergraduates. Includes two crucial concepts: tax incidence—the distribution of tax burden, which depends not only, or even mainly, on who pays the tax to the government—and the deadweight loss or excess burden, which is the loss in well-being from behavioral adjustments made by taxpayers to reduce their tax liabilities, a loss over and above what is collected.
Salanié, Bernard. The Economics of Taxation. 2d ed. Cambridge, MA: MIT Press, 2011.
An elegant, advanced introduction and overview of the economic theory of taxation.
Slemrod, Joel, and Jon Bakija. Taxing Ourselves: A Citizen’s Guide to the Great Debate over Taxes. 4th ed. Cambridge, MA: MIT Press, 2008.
A nontechnical and comprehensive introduction to the economic issues that arise in debates over tax reform, focused on US issues. Also includes an overview of the contemporary US tax system with some comparison to other advanced democracies.
Tanzi, Vito. “Tax Systems in the OECD: Recent Evolution, Competition, and Convergence.” In The Elgar Guide to Tax Systems. Edited by Emilio Albi and Jorge Martinez-Vazquez, 11–36. Cheltenham, UK: Edward Elgar, 2011.
A useful overview of contemporary tax structures in OECD countries, with emphasis on the growing reliance on consumption taxation, the flattening of nominal personal tax rate structures, and the decline in effective corporate tax rates. Special provisions are not covered because they are so complicated and vary so widely from country to country, though a continual increase in tax complexity is documented.
Users without a subscription are not able to see the full content on this page. Please subscribe or login.
How to Subscribe
Oxford Bibliographies Online is available by subscription and perpetual access to institutions. For more information or to contact an Oxford Sales Representative click here.
Purchase an Ebook Version of This Article
Ebooks of the Oxford Bibliographies Online subject articles are available in North America via a number of retailers including Amazon, vitalsource, and more. Simply search on their sites for Oxford Bibliographies Online Research Guides and your desired subject article.
If you would like to purchase an eBook article and live outside North America please email email@example.com to express your interest.
- Advanced Democracies, Electoral System Reform in
- Advanced Democracies, Public Opinion and Public Policy in
- Advertising and Election Campaigns in the United States
- Africa, Comparative Politics of
- American Indian Politics
- Arab-Israel Conflict, The
- Arendt, Hannah
- Aristotle's Political Thought
- Arms Race Modeling
- Australia and New Zealand, Comparative Politics of
- Authoritarianism in Russia
- Bicameralism in Stable Democracies
- Big Data in Political Science Research
- Biopolitics and State Regulation of Human Life
- Brazilian Political Development
- Business-State Relations in Europe
- Campaign Finance in the Era of Super-PACS
- Canadian Foreign Policy
- Candidate Emergence and Recruitment
- Channels of Electoral Representation in Advanced Industria...
- China's One-Child Policy
- China-Taiwan Relations
- Chinese Communist Party
- Chinese Economic Policy
- Chinese Nationalism
- Civil Society in South Asia
- Civil War in Sub-Saharan Africa
- Civil-Military Relations in Asia
- Civil-Military Relations in Latin America
- Class in American Politics
- Comparative Capitalism Theory
- Comparative Industrial Relations in Europe
- Comparative Politics of Angola, Mozambique, and Guinea-Bis...
- Comparative Politics of Chile and Uruguay
- Comparative Politics of Federalism
- Comparative Politics of the Middle East and North Africa
- Congress, Defense, and Foreign Policy
- Congressional Reassertion of Authority
- Conservative Litigation Strategies and Groups in US Judici...
- Corruption in China
- Cosmopolitan Political Thought
- Crisis of European Integration in Historical Perspective, ...
- Critical Theory and the Frankfurt School
- Cuban Political Development
- Cycles of Protest
- Democracy and Authoritarianism in Sub-Saharan Africa
- Democracy and Dictatorship in Central Asia
- Democracy in Latin America
- Democratic Citizenship
- Democratic Consolidation
- Democratic Peace Theory
- Democratic Theory
- Democratization in Africa
- Democratization in Central America
- Democratization in Mexico
- Development of Survey Research
- Direct Democracy in the United States
- East Africa, Politics of
- Economic Voting
- Election Forecasting
- Election Laws in Democracies
- Electoral and Party System Development in Sub-Saharan Afri...
- Electoral Change in Latin America
- Emotion and Racial Attitudes in Contemporary American Poli...
- Environmental Governance
- Environmental Politics among Advanced Industrial Democraci...
- Ethnic Diasporas and US Foreign Policy
- Ethnic Politics
- Eurasia, Comparative Politics of
- European Social Democracy
- European Union, Politics of the
- Failed and Weak States in Theory and Practice
- Far-Right Parties in Europe
- Federalism in the United States
- Field Experiments
- Filibuster, The
- Gender and Electoral Politics in the United States
- Gender and International Relations
- Gender, Behavior, and Representation
- Global Inequality
- Globalization and the Welfare State
- Globalization, Health Crises, and Health Care
- Governance in Africa
- Governmental Responses to Political Corruption
- Gridlock and Divided Government in the U.S.
- Historiography of Twentieth-Century American Conservatism,...
- Hobbes’s Political Thought
- Hume’s Political Thought
- Hybrid Regimes
- Identity and Political Behavior
- Ideological Reasoning in Politics
- Immigrant Incorporation in Canada
- Immigrant Incorporation in Western Europe
- Immigration and International Relations
- Immigration Politics and Policy in the United States
- Impact of Campaign Contributions on Congressional Behavior...
- Implicit Attitudes in Public Opinion
- Income Dynamics and Politics in North America and Europe
- Income Inequality and Advanced Democracies
- Income Inequality in the United States, The Politics of
- Indian Democracy
- Indigenous Rights and Governance in Canada, Australia, and...
- Informal Practices of Accountability in Urban Africa
- Institutional Change in Advanced Democracies
- Intellectual Property in International Relations
- Interest Groups and Inequality in the United States
- Interest Groups in American Politics
- International Conflict Management
- International Criminal Justice
- International Law
- International NGOs
- International Political Economy of Illegal Drugs
- Internet and Politics, The
- Iran, Political Development of
- Israeli Politics
- Judicial Supremacy and National Judicial Review
- Judiciaries and Politics in East Asia
- Kant's Political Thought
- Labor Politics in East Asia
- Land Reform in Latin America
- Latin America, Democratic Transitions in
- Latin America, Environmental Policy and Politics in
- Latin America, Guerrilla Insurgencies in
- Latin America, Social Movements in
- Legal Mobilization
- LGBT Politics in the United States
- Liberal Pluralism
- Local Governments in the United States
- Machiavelli’s Political Thought
- Marx's Political Thought
- Mass Incarceration and US Politics
- Mechanisms of Representation
- Media Effects in Politics
- Media Politics in South Asia
- Minority Political Engagement and Representation in the Un...
- Modern Dynastic Rule
- Modern Elections and Voting Behavior in Europe
- National Interbranch Politics in the United States
- NATO, Politics of
- Negative Campaigning
- Neoclassical Realism
- New Institutionalism Revisited, The
- North America, Comparative Politics of
- Oil, Politics of
- Origins and Impact of Proportional Representation, The
- Outcomes of Social Movements and Protest Activities
- Partisan and Nonpartisan Theories of Organization in the U...
- Partisan Polarization in the US Congress
- Partisan Polarization in the US Electorate
- Party Networks
- Peace Operations
- Personality and Politics
- Plato's Political Thought
- Policy Responsiveness to Public Opinion
- Political Economy of Financial Regulation in Advanced Ind...
- Political Economy of India
- Political Economy of Taxation, The
- Political Geography in American Politics
- Political Obligation
- Political Parties and Electoral Politics of Japan
- Political Thought, Hegel's
- Political Thought of the American Founders, The
- Politics and Policy in Contemporary Argentina
- Politics of Anti-Americanism
- Politics of Class Formation
- Politics of Disaster Prevention and Management
- Politics of Financial Crises
- Politics of Foreign Direct Investment in South Asia
- Politics of Higher Education in the U.S.
- Politics of Internal Conquest in the United States and Can...
- Politics of Japan
- Politics of Natural Disasters, The
- Politics of North Korea
- Politics of Science and Technology
- Politics of South Africa
- Politics of Southern Africa
- Postcolonialism and International Relations
- Post-Communist Democratization
- Preferential Trade Agreements, Politics of
- Presidential Persuasion and Public Opinion
- Presidential Primaries and Caucuses
- Private Governance
- Public Opinion in Advanced Industrial Democracies
- Public Opinion in New Democracies and Developing Nations
- Public Presidency, US Elections, and the Permanent Campaig...
- Qualitative Methods, The Renewal of
- Race in American Political Thought
- Racial and Ethnic Descriptive Representation in the United...
- Regime Transitions and Variation in Post-Communist Europe
- Regional Integration in Latin America
- Regional Security
- Regulating Food Production
- Religion in American Political Thought
- Religion in Contemporary Political Thought
- Religion, Politics, and Civic Engagement in the United Sta...
- Rousseau's Political Thought
- Rule of Law
- Russia and the West
- Science and Democracy
- Social Policy and Immigrant Integration
- South Korea, Politics of
- Spectacle, The
- State Building in Sub-Saharan Africa
- State Formation
- State, The Nature of the
- Supreme Court of the United States, The
- Systemic Theories of International Politics
- Taiwan, Politics of
- Tea Party, The
- The New Right in American Political Thought
- Transitional Justice
- Transnational Private Regulation
- Turkey, Political Development of
- US Military Bases Abroad
- US Presidency, The
- Voter Turnout
- Welfare State Development
- Welfare State Development in Latin America
- Welfare State Development in Western Europe
- West Africa, Politics of
- Worker Politics in China
- Youth and Generational Differences in US Politics