Focusing on developing countries in three geographical areas (South-East Asia, Latin America and European Union), we explore the relation between political variables and tax revenue, public spending and their structure. We build a new dataset for the 1990-2005 period with fiscal, political and socio-economic variables. Since democracy is a complex and multidimensional concept, we measure it using two variables, the political strength of democratic institutions, and the protection of civil liberties. We perform three sets of estimates: (i) cross-country pooled OLS regressions with region fixed effects, (ii) country fixed effects regressions and (iii) region specific regressions with country fixed effects. While the first model delivers some significant correlations between political variables and tax items, when controlling for country fixed effects we find that tax revenue and tax composition are in general not significantly correlated with the strength of democratic institutions and the protection of civil liberties. The only exceptions are indirect, trade and property taxes. A similar result applies to public spending, with the exception of defense expenditure. Overall, our findings cast some doubt on the exact public policy channels through which political institutions affect economic development.

Does democracy affect taxation and government spending? Evidence from developing countries

PROFETA, PAOLA ANTONIA;PUGLISI, RICCARDO;SCABROSETTI, SIMONA
2012

Abstract

Focusing on developing countries in three geographical areas (South-East Asia, Latin America and European Union), we explore the relation between political variables and tax revenue, public spending and their structure. We build a new dataset for the 1990-2005 period with fiscal, political and socio-economic variables. Since democracy is a complex and multidimensional concept, we measure it using two variables, the political strength of democratic institutions, and the protection of civil liberties. We perform three sets of estimates: (i) cross-country pooled OLS regressions with region fixed effects, (ii) country fixed effects regressions and (iii) region specific regressions with country fixed effects. While the first model delivers some significant correlations between political variables and tax items, when controlling for country fixed effects we find that tax revenue and tax composition are in general not significantly correlated with the strength of democratic institutions and the protection of civil liberties. The only exceptions are indirect, trade and property taxes. A similar result applies to public spending, with the exception of defense expenditure. Overall, our findings cast some doubt on the exact public policy channels through which political institutions affect economic development.
2012
Profeta, PAOLA ANTONIA; Puglisi, Riccardo; Scabrosetti, Simona
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3774351
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 48
  • ???jsp.display-item.citation.isi??? 45
social impact