Comparative Taxation and Democratization: State Revenue Production and Democratization Revisited

Abstract

Echoing the call of "no taxation without representation", the evolution of modern taxation went hand-in-hand with early democratization. However, the study of contemporary democratization has assigned a marginal role to taxation compared with other correlates, such as economic inequality and the rent from natural resources. Comparative taxation literature indicates a divergence in tax developments along different waves of democratization. Contemporary democratizers can make use of the modern system that early democratizers developed. Under the liberalization pressure from globalized economies, they tend to adopt a modern tax (i.e., value-added tax) prior to democratization. Using an entropy-balancing method to adjust the imbalances in co-variates, quantitative analyses of panel data obtained from 160 countries between 1960 and 2007 demonstrate the positive effect of the value-added tax on democratization. Bringing taxation back in the third wave of democratization, we illuminate the fundamental premise that the taxation-democratization linkage has traveled from early to contemporary democratization.

Keywords: Taxation, VAT, democratization, international organizations, inequality

JEL Classification: D74, H23, D63, N30, N40