Elections and the Structure of Taxation in Developing Countries

28 Pages Posted: 31 Jan 2013

Date Written: January 1, 2013

Abstract

This article analyses the impact of the electoral calendar on the composition of tax revenue (direct versus indirect taxes). It thus represents an extension of traditional political budget-cycle analyses assessing the impact of elections on overall revenue. Panel data from 56 developing countries over the 1980-2006 period reveals a clear pattern of electorally-related policy interventions. Taking the potential endogeneity of election timing into account, we find robust evidence of lower indirect taxes being applied by incumbent governments in the period just prior to an election. Indirect tax revenue in election years is estimated to be 0.3 GDP percentage points lower than in other years, corresponding to a fall of about 3.4% of the average figure in the sample countries, while there is no such relationship with direct tax revenue.

Keywords: political budget cycles, elections, taxation, developing countries

JEL Classification: D72, E62, O10

Suggested Citation

Ehrhart, Helene, Elections and the Structure of Taxation in Developing Countries (January 1, 2013). Banque de France Working Paper No. 419, Available at SSRN: https://ssrn.com/abstract=2209215 or http://dx.doi.org/10.2139/ssrn.2209215

Helene Ehrhart (Contact Author)

Banque de France ( email )

Paris
France

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