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Thursday, January 26, 2012

Barnes Presents Political Fragmentation and Taxation Today at Indiana

Lucy Barnes Indiana Logo(Nuffield College, Oxford University) presents When Does Tax Reform Occur and What Shapes its Distributional Effects? Coalition Politics in the United States at Indiana-Bloomington today as part of its Tax Policy Colloquium Series hosted by Ajay Mehrotra:

What explains variation in the progressivity of taxation across countries andover time? Most existing explanations highlight the relationship between spending levels and the structure of tax- ation, arguing that the efficiency constraints associated with larger government size lead to less progressive tax structures. However, this literature overlooks the political determinants of tax policy choices. Thus I consider the role that political parties play in determining the progressiv- ity of taxation, testing the `conventional wisdom' that left parties should adopt more progressive stances than right against theories highlighting credible commitment which suggest the opposite (Timmons 2010). However, these results are inconsistent with the partisan evolution of tax structures within countries (rather than between them).

Given the systematic association of left governments with di erent electoral systems and thus types of government, I investigate whether it is these di erences driving the cross-national asso- ciations. Detailed case studies of the United States, United Kingdom and France at the origins of modern taxation (1890 - 1914) reveal that the degree of political fragmentation -- manifested in both multiparty parliamentary systems and coalition governments -- a ffects the structure of taxation. Greater political fragmentation leads to less progressive systems of taxation. Combined with the large literature on the e ect of fragmentation in generating larger welfare states, this implies that in addition to the direct economic link between larger welfare states and regressive tax structures, there is also a link that stems from their common political causes.

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I've always found the argument convincing that to provide massive benefits to the middle class you need to heavily tax the middle class, since that's where most of the money is. On the other hand, even with a small government the rich will be taxed to extract close to maximum revenue. Consequently big government taxation is inevitably more regressive than smaller government taxation. This simple explanation is sufficient in my opinion.

Posted by: AMTbuff | Jan 26, 2012 3:59:41 PM