The Fiscal Contract: States, Taxes, and Public Services

Abstract

Using data from approximately ninety countries, the author shows that the more a state taxes the rich as a percentage of GDP, the more it protects property rights; and the more it taxes the poor, the more it provides basic public services. There is no evidence that states gouge the rich to benefit the poor or vice versa, contrary to state-capture theories. Nor is there any evidence that taxes and spending are unrelated, contrary to state-autonomy models. Instead, states operate much like fiscal contracts, with groups getting what they pay for.

People's Views of Taxation in Africa: A Review of Research on Determinants of Tax Compliance

“…Empirical evidence to support the theory is, however, ambiguous (D'Arcy 2011: 5-6). Timmons (2005) find a statistically significant and positive relationship between tax revenues (i.e. compliance) and government expenditures on social welfare in a cross-country analysis.…”

“…This is essentially about stimulating good governance at the interface between state and society, in response to the demands of citizens. Thus, there is a strong argument that substantial governance 'dividend' can be gained from 8 Inferring from the core idea of a fiscal social contract, several more general theoretical propositions have been made (D'Arcy 2011: 5): (a) how a state earns its revenue determines its character (Moore 1998(Moore , 2004; (b) that the state is most responsive to those from whom it collects most of its revenue (Timmons 2005); and (c) that this dependency is the citizen's chief bargaining tool to make the state more democratic, accountable and responsive (Levi 1988;Ross 2004). 9 Moore (2004: 312) notes that "[I]f one starts from the assumption that a core governance problem lies in the dearth of bargained exchange relationships between the state and any organized societal group, then any collective action on the part of business to negotiate with the state over taxation might be considered to be potentially positive, even if it takes place entirely outside any representative or legislative institutional framework".…”

Assessing the tax systems' risk and efficiency in Russian regions at different levels of the budget system

“…• Fiscal contractualism emphasizes the importance of legitimacy and credibility in bargaining processes and tax compliance (Moore 2008;Fauvelle-Aymar 1999;Timmons 2005;Levi / Sacks 2007;Bates / Lien 1985;Mahdavi 2008). In this context, democracy should lead to higher tax collection, as tax payers can be more confident that taxes are spent for the common good, that the distribution of the tax burden is fair and that the risk of radical policy changes in the future is low.…”

“…In a similar fashion, Ross (2004) for 115 countries with an observation period from 1971 to 97 does not produce any significant association between tax ratio and regime. In contrast, Garcia / von Haldenwang (2011) find a Ushaped relation between political regimes and tax ratio, with full autocracies and full democracies collecting significantly higher shares than political regimes located in-between both margins.• Fiscal contractualism emphasizes the importance of legitimacy and credibility in bargaining processes and tax compliance (Moore 2008;Fauvelle-Aymar 1999;Timmons 2005;Levi / Sacks 2007;Bates / Lien 1985;Mahdavi 2008). In this context, democracy should lead to higher tax collection, as tax payers can be more confident that taxes are spent for the common good, that the distribution of the tax burden is fair and that the risk of radical policy changes in the future is low.…”

The Spatial Dimensions of State Fiscal Capacity The Mechanisms of International Influence on Domestic Extractive Efforts

“…Since the default regime type for states since their earliest formation has been autocracy, it stands to reason that once a transition occurs and a democracy is established that its rulers would look to other democracies as models for their policies. Since the legitimacy of the bargain over taxation between rulers and ruled in a democracy is critical for the survival of elected leaders in office as well as the maintenance of democracy itself, rather than simply rely on untested notions of what constitutes a legitimate fiscal contract it makes sense that other models used by democracies would be adapted (Timmons 2005). Campbell's (1992Campbell's ( , 1993Campbell's ( , 1994) work on taxation policy in the newly democratized Central and Eastern European states showed a great deal of isomorphism as states emulated Western European democracies after the transition.…”