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A Note on Taxation, Development and Representative Government
Abstract
This article proposes a model representing the relationship between economic actors and revenue seeking governments. Given a need for revenues, the model predicts the allocation of the new tax burden and patterns of control over public policy. The model is motivated by the history of the rise of parliaments in Western Europe. It is extended to urban and developmental politics. It is designed to employ the techniques of "neo-classical" economics to explore themes which have been developed most clearly in Marxist writings. Most importantly, the model suggests the way in which, given a need for revenues, specific fractions of the private sector can gain control over public policy. And it characterizes precisely the factors which yield differences in the ability of economic agents to employ the market to defect from the tax-levying state. The analysis thus gives insight into both the origins and the limitations of political democracy.
... These explanations for institutional change on platforms draw on political science research on democratization that links the creation of democratic institutions to the presence of powerful groups with the means to harm rulers through resistance or exit (Bates and Lien 1985;Deudney 2007;Moller 2014;Stasavage 2016). For example, rulers in medieval Europe were more likely to establish representative institutions when they faced the threat of external war and when elites in the polity had mobile wealth and exit options (Bates and Lien 1985;Kenkel and Paine 2023;Stasavage 2016). ...
... These explanations for institutional change on platforms draw on political science research on democratization that links the creation of democratic institutions to the presence of powerful groups with the means to harm rulers through resistance or exit (Bates and Lien 1985;Deudney 2007;Moller 2014;Stasavage 2016). For example, rulers in medieval Europe were more likely to establish representative institutions when they faced the threat of external war and when elites in the polity had mobile wealth and exit options (Bates and Lien 1985;Kenkel and Paine 2023;Stasavage 2016). Representative institutions were more likely to emerge in small polities because of lower collection action costs and less power asymmetry between the ruler and the governed (Deudney 2007, 54, 127-29). ...
... These findings are consistent with scholarship on democratization that links the creation of democratic institutions to the presence of powerful groups with the means to harm rulers through resistance, exit, or both (Bates and Lien 1985;Deudney 2007;Moller 2014;Stasavage 2016). In a reformulation of Albert Hirschman's Exit, Voice and Loyalty (1970) framework, I show that platform users become less able to exercise their voice to a meaningful end when the exit option is not credible. ...
Under what conditions are user-generated digital content platforms responsive to pressures from users, businesses, and states? I propose that digital platforms show different levels of responsiveness to users, businesses, and states over time. Early in a platform’s life, the platform is highly sensitive to the demands of users, who have an opportunity to directly shape the institutional characteristics of the platform through the threat of user revolt. The unique power of its users stems from the network logic that underpins the value of the platform. As a platform grows and the size and centrality of its network increase, it becomes more sensitive to pressures by businesses (through boycotts) and the state (through regulation). At the same time, the power of users lessens as collective action problems become more severe and exit threats become less credible. The threat of user revolts has a temporal significance: Unless users alter the institutional architecture of the platform and lock in pro-user institutional characteristics early, the threat of user revolts becomes less consequential as the platform grows. Comparative case studies of Facebook, Wikipedia, Digg, and Reddit provide support for the theory.
... In contrast, individuals of the homo-reciprocans type comply due to their intrinsic sense of shared responsibility and motivation to contribute to public goods as part of a collective effort (see Fehr and Gächter, 1998). 1 We propose that the type of compliers and their underlying motives are critical in determining whether compliance translates into subsequent accountability-seeking behavior. The "taxation-representation" model (Peruzzotti and Smulovitz, 2006;Bates and Donald Lien, 1985) suggests that citizens contribute financially to public services more promptly if the government allows them to monitor the public goods provision (Porumbescu et al., 2017) and provides satisfactory service. Quasi experimental evidence from Brazilian municipalities shows that the government puts more effort to improve the quality of service provision when its funding predominantly relies on citizens' taxes (Gadenne, 2017). ...
... The related evidence spans many fields of social sciences, from psychology (Gilligan, 1982), through sociology (Eckel and Grossman, 2001), to decision/management science (Babcock and Laschever, 2003). Based on these documented gender differences with respect to the cooperative "type," we thus expect that women should respond to the "compliance-accountability" logic more promptly (Bates and Donald Lien, 1985). In line with this prediction, in Fig-ure 6, we find that compliance induced by the priming of cooperative norms indeed increases accountability-seeking among women, but not among men. ...
... Given the mounting evidence that drivers of tax morale (and trust in particular) are key determinants of tax compliance (Cummings, Martinez-Vazquez, McKee and Benno 2009) and that higher levels of tax morale are linked to greater support for tax reforms (Prichard, Custers, Dom, Davenport and Roscitt 2019), strengthening tax morale through trust-building initiatives can encourage "quasi-voluntary" tax compliance. This can however only be successfully achieved with good governance and political accountability (Bates and Lien 1985). Against this background, taxation could lay the foundations of a social pact between the government and its citizens by directly linking tax payments to the government to public goods and service provision (in this case free or low-cost access to basic healthcare services), connecting revenue mobilization, reciprocity and accountability and fostering trust and strengthening legitimacy. ...
To improve health coverage and revenue collection, several African countries consider tax-for-health-services programs where informal workers pay income tax for health insurance. We examine these programs in Nigeria, investigating whether informal workers support such initiatives, what parameters improve program perception, and what drives preferences about these parameters. Using a conjoint survey experiment with 12,000 informal workers across 12 Nigerian states, we find citizens more likely to support earmarked tax allocation programs, with tax level being most important. Informal workers with less healthcare experience and need, and those feeling distant from government, prioritize tax level and starting date more than others. Our study shows that informal workers in Nigeria generally support earmarked tax-for-health-services programs, but specific design parameters matter. Preferences vary based on healthcare experience and government trust. These findings inform the design of earmarked tax programs to improve healthcare coverage and revenue collection.
... Sementara itu, perspektif kelembagaan historis (historical institutionalism) menekankan bahwa hubungan antara demokrasi dan perpajakan dibentuk oleh trajektori pembangunan institusional jangka panjang (Tilly, 1992). Menurut pandangan ini, kapasitas perpajakan negara berkembang melalui proses tawar-menawar antara negara dan masyarakat, di mana pengenaan pajak diimbangi dengan perluasan representasi politik-proses yang dirangkum dalam slogan "no taxation without representation" (Bates & Lien, 1985). ...
Penelitian ini bertujuan untuk mengkaji hubungan antara sistem demokrasi dan penerimaan pajak melalui pendekatan Systematic Literature Review (SLR). Demokratisasi diasumsikan memiliki implikasi pada kepatuhan pajak, akuntabilitas fiskal, dan legitimasi kebijakan perpajakan, yang pada akhirnya memengaruhi total penerimaan pajak. SLR dilakukan dengan menganalisis 47 artikel ilmiah yang diterbitkan dalam jurnal terindeks Scopus dan Web of Science selama periode 2010-2024. Hasil kajian menunjukkan bahwa terdapat hubungan positif yang signifikan antara kualitas demokrasi dan penerimaan pajak, terutama pada negara-negara dengan institusi yang kuat. Mekanisme yang mendasari hubungan ini mencakup: (1) peningkatan akuntabilitas pemerintah dalam pengelolaan dana publik, (2) penguatan kontrak sosial dan legitimasi pajak, (3) peningkatan partisipasi wajib pajak dalam pembuatan kebijakan fiskal, dan (4) reformasi administrasi perpajakan yang lebih transparan. Penelitian ini juga mengidentifikasi faktor-faktor moderasi seperti tingkat pembangunan ekonomi, kapasitas institusional, dan ketimpangan pendapatan yang memengaruhi kekuatan hubungan tersebut. Implikasi dari temuan ini menyarankan bahwa penguatan institusi demokratis dan partisipasi publik dalam pengambilan keputusan fiskal dapat menjadi strategi penting untuk meningkatkan penerimaan pajak di negara berkembang.
... A large literature on political connections would suggest that connected firms may be more likely to receive these benefits (Fisman, 2001;Earle and Gehlbach, 2015;Markgraf and Rosas, 2019;Resimic, 2021;Betz and Pond, 2023b). At the same time, the literature on asset mobility suggests that firms may gain influence from their characteristics (Bates and Lien, 1985;Oatley, 1999;Boix, 2003;Kerner and Lawrence, 2014;Pond and Zafeiridou, 2020;Johns and Wellhausen, 2020), and providing revenue may be a lever for gaining political influence-separate from political connections. We leave to future research considerations about which firms receive preferential treatment and the extent to which firms can gain influence from revenue. ...
Although citizens value competitive markets and support small businesses, we observe substantial variation in market concentration. Why do politicians abstain from taking action to reduce concentration? We propose an often overlooked political benefit to concentrated markets: When concentration increases, competition is less pronounced and firms earn larger profits. These profits can be taxed for government revenue or used to reward business-friendly politicians. We expect politicians to impose more lenient competition policies toward firms that provide larger sources of revenue. Moreover, this relationship should be especially strong under authoritarian political institutions, where politicians only weakly value the free market and consumer outcomes and where institutional commitments to unbiased policies are weak. We derive our theoretical claims from a formal model. We draw on both cross-country evidence and evidence from Turkey at the firm and industry level to evaluate our claims. We find that as political institutions become less representative, firms that make higher tax payments tend to control more assets, operate in more concentrated industries, and engage in higher value M&As. Our study points to the weak provision of competition policies as a source of rent-seeking.
How do core principles of modern democracy impact the development of state spending? Drawing on Dahl’s (1971) conceptualization of polyarchy, we explain that public budgets in modern states evolved according to how electoral competition and suffrage incorporated key actors within societies. Before contestation and suffrage, land-owning elites led states that focused spending on repressive capacity to maintain regime security. Contestation without broad participation incorporated urban elites who benefited from spending on economic development. Extending suffrage to the masses expanded spending on social welfare but only when regimes allowed for political competition. To test the hypotheses, we collect data on patterns of government finance for over thirty countries across the globe between the early 19th and mid-20th centuries. Two-way fixed effects models and multiple sensitivity analyses offer strong evidence for the theoretical expectations. The findings expand on a substantial literature to form a more complete understanding of democracy and public budgets.
How does the extent of the voting franchise impact public finance in a democracy? In this paper I discuss that question from theoretical and historical perspectives. There is no simple relationship between the extent of the voting franchise and public finance, either in the total size of government spending or the allocation of that spending among different functions. Instead, franchise extensions are the product of the interaction of various groups in the polity, and the process by which the franchise extension occurs is a crucial factor in determining the government budget. Evidence from several historical periods is discussed, as well as new evidence from the U.S. states in the early Nineteenth Century.
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