The importance of consent : the politics of progressive taxation in developing countries
- Developing countries are far more successful in increasing tax pressure on the poor than on the wealthy. To explain this difference, I argue that taxing the wealthy is more prominently a problem of credibility than of coercion. The poor can be forced to pay taxes. Given weak administrative capacities and de facto political power distributions, governments in many developing countries cannot force the wealthy to the same degree.
In this line, I examine the conditions under which wealthy taxpayers consent to taxation in developing countries from different methodological angles. The second chapter analyses the Peruvian and the Colombian tax history between 1970 and 2010 using a comparative case study framework. The analysis provides evidence suggesting that stable party systems and strong business organizations increase the capacity of collective action between political actors and wealthy taxpayers. Thereby these factors also enable the definition of fiscal contracts involving higher tax contributions by the latter group.
The third chapter examines the effect of institutional trust on the support for progressive taxation using public opinion data from the Latin American Opinion Project (LAPOP). The results show that trust in political institutions strongly mitigates the opposition of wealthy taxpayers to progressive taxation.
The fourth chapter four uses panel data for over 90 countries to explore the relationship between party system institutionalisation and reliance on the personal income tax. The analysis indicates that administrative capacity mitigates the effect of party system institutionalization: where the level of administrative capacity is low, party system institutionalisation has a positive and highly significant effect. At high levels of administrative capacity this effect disappears.
Overall, the findings support the notion that especially in developing countries taxing the wealthy is best understood as a political challenge. The good news is that contrary to what is commonly assumed, wealthy taxpayers are not a priori opposed to higher taxes on them. There is scope for wealthy taxpayers to support taxation but this demands reliable political and institutional systems that are able to credibly commit to not misusing the tax contributions. The analysis has major implications for development cooperation active in this field as it demands that the approaches employed balance better the technical and the political dimensions of taxation.