An overview of political economy issues in taxation and tax reforms

Political elements interact with economic factors to determine the decision of tax instruments and the choice among them. Political constraints and incentives are indeed the true driver of tax reforms. How are fi scal systems and instruments chosen in a political and institutional context ? The literature on this argument is very extensive. This chapter provides a general framework for the analysis of political economy of taxation and tax reforms, referring to the probabilistic voting model. Our framework links collective choice theoretical models to empirical analysis, which tests the level and composition of public revenues in democratic countries. It delivers interesting guidelines to consider the following issues:(i) labour income tax systems and reforms in EU countries; (ii) wealth transfer taxes. Finally, it turns out to be valuable when we consider the link between taxation (and its major components) and democracy around the world in G7 countries; (iii) the emergence of tax complexity in modern democracies.