Contacts
Research Political Sciences

Tax Rates Are Not Political Party Members

, by Claudio Todesco
Whether the government is rightwing or leftwing, the overall amount of taxation does not change, just its composition, as told in a paper by Paola Profeta

In Europe, the alternation of right-wing and left-wing governments has little bearing on the share of personal income tax. This is one of the results of The Political Economy of Taxation in Europe. The study, co-authored by Paola Profeta with Simona Scabrosetti, is part of a larger research strand on the crucial role played by political variables in shaping tax systems.

The empirical analysis collects data from different sources: from total and fiscal pressure as percentage of GDP to political indicators such as the number of seats held by parties and the concentration of power. Socio-economic and demographic data are used as control variables. "We found out some positive and statistically significant relationships", Profeta says. "The increase of property taxes needs a broad political consensus: there is a positive relationship between the number of seats held by the largest government party and the share of property taxes over GDP. When the country's prime minister or president is left-wing, the individual income taxes are more relevant. When he or she is right-wing, corporate income taxes become more relevant. The costs of tax administration are higher when the country's ruling coalition is left-wing".

Contrary to what you would expect, the timing of tax reforms seems immune to the electoral cycle: politicians avoid dealing with such a delicate issue before elections. The number of seats held by the largest government party is associated with a lower top tax rate of the personal income tax. On the contrary, competition among parties in a coalition government results in higher tax progressivity. Fiscal decentralization leads to a reduction of taxes. "The debate over tax reforms never takes into account political variables, yet they play a crucial role in the evolution of European tax systems".

Read more about this topic
Guido Tabellini. Searching for the Idea of Europe
Interview with Mario Nava. The Integration Agenda to Come
Francesco Daveri. What Could Hamper the Recovery and the Return of Confidence
Tommaso Monacelli. And if a Monetary Union Is Better?
Elena Carletti. Public Debt: Lessons from Greece
Oreste Pollicino. The Judges and the European Web
Paolo R. Graziano. Failures of the EU Neet Plan
Leonardo Borlini. Terrorism and Conflicting Laws