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Do authoritarian institutions mobilize economic cooperation?

Abstract

This paper explores the effect of dictatorial institutions on revenue composition. The higher the degree of institutionalization of the regime, the higher the perceived levels of legitimacy, efficiency and credibility, so taxes that require cooperation and compliance can be more effectively collected from the population. Institutionalized regimes thus make sense if non-tax revenue sources are scarce so limited representation must be granted in exchange of economic support. Our selection-corrected results show that more institutionalized regimes are able to collect more taxes on income, profits and capital gains, taxes on goods and services, taxes on property and payroll taxes.

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Fig. 1

Notes

  1. See Smith (2005) for a similar argument.

  2. See also Lassen (2000).

  3. Aid may include budgetary support, security collaborations, concessionary loans, loan forgiveness, and financing of different kinds of development projects.

  4. Fines and administrative fees are included in the non-tax revenue category; see below the definitions of the variables.

  5. Or “quasy-voluntary compliance” in Levi’s (1988) terms.

  6. See, for instance, Bates and Lien (1985), North and Weingast (1989), Huntington (1991), and Ross (2004).

  7. These are the three factors identified by Fauvelle-Aymar (1999) that would influence taxpayers’ behavior and, as a result, the tax capacity of the government.

  8. Aliança Renovadora Nacional.

  9. Movimento Democrático Brasileiro.

  10. World Development Indicators, World Bank (2002).

  11. Seventy-five percent of the world’s total oil production and 90% of the reserves are in the hands of state-owned enterprises (Morrison 2005).

  12. See Therkildsen (2002) for a discussion.

  13. The use of instrumental variables in this context method presents two problems. First it would only correct the endogeneity problem in case the bias only stems from observable variables. Nonetheless, given the potential influence of preferences and the higher degree of personal autonomy of dictatorial leaders, the role of some unobservable variable cannot be ruled out. Secondly, finding an instrument for an institutional variable is an extremely difficult task; and the problem becomes even more acute given the categorical nature of our categorization of dictatorial regimes.

  14. Namely, j = 0 for non-institutionalized dictatorships, j = 1 for regimes with a single institution, and j = 2 for fully institutionalized regimes.

  15. Concretely, that ε and υ are jointly normally distributed.

  16. See footnote 12.

  17. We use both multinomial as well as ordered logistic regressions.

  18. See the appendix for a description of the data used throughout this paper.

  19. Hence, we agree with Fauvelle-Aymar (1999) in considering essential for the full understanding of revenue policy, especially among developing countries, the inclusion of non-tax revenues.

  20. We follow the classification of regimes developed by Przeworski et al. (2000), which has been recently updated.

  21. The correlation between the percentage of revenue levied from taxes on international trade and taxes on incomes and profits is −0.15.

  22. It is 0.40 for the whole sample.

  23. We have run Breusch-Pagan tests to check for dependent equations.

  24. The tables containing the selection-corrected coefficients for the revenue components of the two models (SUR and panel corrected standard errors) are not reported but are available from the author.

  25. The sign of the difference should be interpreted as follows: “No inst. vs. single inst.” means that the average of second institutional setting is subtracted to the average of the first, so a negative difference shows that the average of the second, “single inst.” in this example, is bigger.

  26. The data are taken from Penn World Tables 5.6 and cover the period from 1950 to 2000.

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Acknowledgements

The author wishes to thank Tània Verge and participants at the IBEI Research Seminar for encouragement and comments.

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Correspondence to Abel Escribà-Folch.

Appendix: Codebook

Appendix: Codebook

  • Civilian: Dummy variable coded 1 if the effective head of government is civilian and 0 if the head is of either the military or of monarchy. Compiled from Banks et al.’s (various years) Political Handbook and other historical sources.

  • Military: Dummy variable coded 1 if the effective head is or ever was a member of the military by profession, 0 if civilian or monarchy. Note that we code retired members of the military as 1. Also note that we do not consider rulers who come to power as head of guerilla movements as military. They are coded as civilian or 0. Compiled from Banks et al.’s (various years) Political Handbook and other historical sources.

  • Democracy before: Dummy variable coded 1 if the previous regime was a democratic one, 0 otherwise.

  • British colony: Dummy variable coded 1 for every year in countries that had been a British colony any time after 1919, 0 otherwise.

  • Democracies in the world: Other democracies in the world, percentage. Percentage of democratic regimes (as defined by REG) in the current year (other than the regime under consideration) in the world. Compiled from Przeworski et al. (2000).

  • Dictatorships in the region: Annual proportion of dictatorial regimes (as defined by ‘regime’) within the same region.

  • Regime: Political Regime. Coded 1 if the current regime is a dictatorship and 0 if it is a democracy. Compiled from Przeworski et al. (2000).

  • Resource-rich country: Dummy variable coded 1 if the average ratio of fuel exports or non-fuel primary products exports to total exports in 1990–1993 exceeded 50%, 0 otherwise. This variable is time invariant. Source: IMF (1999) and Przeworski et al. (2000).

  • Past transitions to dictatorship: Sum of past transitions to authoritarianism in a country. If a country experienced a transition to authoritarianism before 1946, this variable was coded 1 in 1946. Compiled from Przeworski et al. (2000).

  • Aid per capita: Aid per capita. Source WDI.

  • Ethnic fractionalization: Index of ethnic fractionalization. The index is defined as: 1 − ETHFRAC = 1 − Σ p i2 , i = 1,…,I, where p i is the proportion of the population belonging to ethnolinguistic group i and I is the number of ethnolinguistic groups in the country. ETHFRAC measures the probability that two randomly selected persons from a given country will not belong to the same ethnolinguistic group. So note that to form the standard fractionalization index, it is necessary to subtract ETHFRAC from 1. This is a time invariant variable combining information from both the Soviet ELF index and Fearon (2003).

  • Population density: Population density. Source: WDI.

  • Trade: Exports and imports as a share of GDP (both in 1985 international dollars). Source: OPEN in Penn World Tales 5.6a.

  • Urban population: Percentage of total population living in urban areas. Source: WDI.

  • Agriculture: Agricultural sector value added as a percentage of the GDP. Source: WDI.

  • Surface: Surface area, squared kilometers. Source: WDI.

  • Age dependency: Age dependency ratio (dependents to working-age population). Source: WDI.

  • Currev: Current revenue (% GDP): Source: WDI.

  • NONTAXGDP: Non-tax revenue as a % of GDP. Source: WDI.

  • INCTAXGDP: Taxes on income, profits and capital gains as a % of GDP. Source: WDI.

  • INTAXGDP: Taxes on international trade as a % of GDP. Source: WDI.

  • GSTAXGDP: Taxes on goods and services as a % of GDP. Source: WDI.

  • SSTAXGDP: Social security taxes as % of GDP. Source: WDI.

  • OTHERTAXGDP: Other taxes as a % of GDP. Source: WDI.

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Escribà-Folch, A. Do authoritarian institutions mobilize economic cooperation?. Const Polit Econ 20, 71 (2009). https://doi.org/10.1007/s10602-008-9052-6

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Keywords

  • Authoritarianism
  • Dictatorship
  • Taxation
  • Institutions

JEL Classification

  • H24
  • H27
  • H71