Skip to main content
SpringerLink
Log in

No Taxation Without Representation? An Empirical Examination of the Relationship Between Democratization and Tax Compliance

  • Original Article
  • Published:
Chinese Political Science Review Aims and scope Submit manuscript

Abstract

The existing literature mostly assumes a positive relationship between democracy and tax compliance. Combining individual-level data from the World Value Survey and country-level data from the Polity IV Project and World Development Indicators, our empirical analysis provides an alternative finding: while tax compliance does increase with the degree of democratization, our heterogeneous effect analysis shows that this association is exclusively pronounced under well-established democratic regimes. By contrast, the democratic transition under autocracies or hybrid regimes substantially erodes tax compliance. We also find that tax compliance plays an important role in shaping tax structure, leading to a higher share of direct tax revenues. Our research therefore highlights the significance of better understanding of the determinants and consequences of tax compliance across various political regimes.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. This information is based upon the estimates from World Institute for Development Economics Research at United Nations University.

  2. These years are: 1981–1982, 1984, 1989–1991, 1995–2015, and 2016.

  3. The survey questionnaires are available from http://www.worldvaluessurvey.org/wvs.jsp, last retrieved on July 31 2019.

References

  • Acemoglu, D., and J.A. Robinson. 2000. Democratization or repression? European Economic Review 44 (4–6): 683–693.

    Google Scholar 

  • Acemoglu, D., and J.A. Robinson. 2005. Economic origins of dictatorship and democracy. Cambridge: Cambridge University Press.

    Google Scholar 

  • Alm, J., G.H. McClelland, and W.D. Schulze. 1992. Why do people pay taxes? Journal of Public Economics 48 (1): 21–38.

    Google Scholar 

  • Alm, J., and B. Torgler. 2004. Estimating the determinants of tax morale. Proceedings Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association 97: 269–274.

    Google Scholar 

  • Alm, J., and M. Yunus. 2009. Spatiality and persistence in US individual income tax compliance. National Tax Journal 1: 101–124.

    Google Scholar 

  • Ariely, G., and E. Davidov. 2011. Can we rate public support for democracy in a comparable way? Cross-national equivalence of democratic attitudes in the World Value Survey. Social Indicators Research 104 (2): 271–286.

    Google Scholar 

  • Balamatsias, P. 2018. Democracy and taxation. Economics: The Open-Access, Open-Assessment E-Journal 12 (27): 1–28. https://doi.org/10.5018/economics-ejournal.ja.2018-27.

    Article  Google Scholar 

  • Baskaran, T. 2014. Taxation and democratization. World Development 56: 287–301.

    Google Scholar 

  • Bird, R.M. 1992. Tax policy and economic development. Baltimore: Johns Hopkins University Press.

    Google Scholar 

  • Bishop, J.A., J.P. Formby, and P. Lambert. 2000. Redistribution through the income tax: The vertical and horizontal effects of noncompliance and tax evasion. Public Finance Review 28 (4): 335–350.

    Google Scholar 

  • Bjørnskov, C., A. Dreher, and J.A. Fischer. 2010. Formal institutions and subjective well-being: Revisiting the cross-country evidence. European Journal of Political Economy 26 (4): 419–430.

    Google Scholar 

  • Boadway, R., M. Marchand, and P. Pestieau. 1994. Towards a theory of the direct-indirect tax mix. Journal of Public Economics 55 (1): 71–88.

    Google Scholar 

  • Cingranelli, D., and M. Filippov. 2010. Electoral rules and incentives to protect human rights. The Journal of Politics 72 (1): 243–257.

    Google Scholar 

  • Cohen, R., A. Lai, and C. Steindel. 2011. The effects of marginal tax rates on interstate migration in the US. New Jersey Department of the Treasury, 10.

  • Collins, J.H., V.C. Milliron, and D.R. Toy. 1992. Determinants of tax compliance: A contingency approach. The Journal of the American Taxation Association 14 (2): 1.

    Google Scholar 

  • Cummings, R.G., J. Martinez-Vazquez, M. McKee, and B. Torgler. 2009. Tax morale affects tax compliance: Evidence from surveys and an artefactual field experiment. Journal of Economic Behavior and Organization 70 (3): 447–457.

    Google Scholar 

  • Day, K.M., and S.L. Winer. 2006. Policy-induced internal migration: An empirical investigation of the Canadian case. International Tax and Public Finance 13 (5): 535–564.

    Google Scholar 

  • de Soto, H. 2000. The mystery of capital: Why capitalism triumphs in the West and fails everywhere else. New York: Basic Civitas Books.

    Google Scholar 

  • Fearon, J.D., and D.D. Laitin. 2003. Ethnicity, insurgency, and civil war. American Political Science Review 97 (1): 75–90.

    Google Scholar 

  • Feld, L.P., and B.S. Frey. 2007. Tax compliance as the result of a psychological tax contract: The role of incentives and responsive regulation. Law & Policy 29 (1): 102–120.

    Google Scholar 

  • Feldstein, M., and M.V. Wrobel. 1998. Can state taxes redistribute income? Journal of Public Economics 68 (3): 369–396.

    Google Scholar 

  • Gould, A.C., and P.J. Baker. 2002. Democracy and taxation. Annual Review of Political Science 5 (1): 87–110.

    Google Scholar 

  • Hegre, H. 2001. Toward a democratic civil peace? Democracy, political change, and civil war, 1816–1992. American Political Science Review 95 (1): 33–48.

    Google Scholar 

  • Hudson, J., and M. Godwin. 2000. The compliance costs of collecting direct tax in the UK: An analysis of PAYE and National Insurance. Journal of Public Economics 77 (1): 29–44.

    Google Scholar 

  • Hug, S., and F. Spörri. 2011. Referendums, trust, and tax evasion. European Journal of Political Economy 27 (1): 120–131.

    Google Scholar 

  • Johns, A., and J. Slemrod. 2010. The distribution of income tax noncompliance. National Tax Journal 63 (3): 397.

    Google Scholar 

  • Kirchler, E., E. Hoelzl, and I. Wahl. 2008a. Enforced versus voluntary tax compliance: The “slippery slope” framework. Journal of Economic Psychology 29 (2): 210–225.

    Google Scholar 

  • Kirchler, E., S. Muehlbacher, B. Kastlunger, and I. Wahl. 2008b. Why pay taxes? A review of tax compliance decisions. In Developing alternative frameworks for explaining tax compliance, ed. J. Martinez-Vazquez, J. Alm, and B. Torgler, 15–31. London: Routledge.

    Google Scholar 

  • Liebig, T., P.A. Puhani, and A. Sousa-Poza. 2007. Taxation and internal migration—Evidence from the Swiss census using community-level variation in income tax rates. Journal of Regional Science 47 (4): 807–836.

    Google Scholar 

  • Marshall, M.G., T.R. Gurr, and K. Jaggers. 2014. Polity IV project: Political regime characteristics and transitions, 1800–2013, Dataset Users’ Manual. Center for Systemic Peace. Retrieved from http://www.systemicpeace.org/inscr/p4manualv2017.pdf.

  • McCaffery, E.J., and J. Slemrod. 2006. Behavioral public finance. New York: Russell Sage Foundation.

    Google Scholar 

  • Muehlbacher, S., E. Kirchler, and H. Schwarzenberger. 2011. Voluntary versus enforced tax compliance: Empirical evidence for the “slippery slope” framework. European Journal of Law and Economics 32 (1): 89–97.

    Google Scholar 

  • Picur, R.D., and A. Riahi-Belkaoui. 2006. The impact of bureaucracy, corruption and tax compliance. Review of Accounting and Finance 5 (2): 174–180.

    Google Scholar 

  • Pommerehne, W.W., and H. Weck-Hannemann. 1996. Tax rates, tax administration and income tax evasion in Switzerland. Public Choice 88 (1–2): 161–170.

    Google Scholar 

  • Robinson, J.A. 2006. Economic development and democracy. Annual Review of Political Science 9: 503–527.

    Google Scholar 

  • Rodrik, D., and R. Wacziarg. 2005. Do democratic transitions produce bad economic outcomes? American Economic Review 95 (2): 50–55.

    Google Scholar 

  • Rowley, C.K., and N. Smith. 2009. Islam’s democracy paradox: Muslims claim to like democracy, so why do they have so little? Public Choice 139 (3–4): 273–299.

    Google Scholar 

  • Torgler, B. 2003. Tax morale: Theory and empirical analysis of tax compliance. (Ph.D. Dissertation). University of Basel, Faculty of Business and Economics.

  • Vreeland, J.R. 2008. The effect of political regime on civil war: Unpacking anocracy. Journal of Conflict Resolution 52 (3): 401–425.

    Google Scholar 

  • Wallschutzky, I.G. 1984. Possible causes of tax evasion. Journal of Economic Psychology 5 (4): 371–384.

    Google Scholar 

  • Watrin, C., and R. Ullmann. 2008. Comparing direct and indirect taxation: The influence of framing on tax compliance. The European Journal of Comparative Economics 5 (1): 33.

    Google Scholar 

  • Witte, A.D., and D.F. Woodbury. 1985. The effect of tax laws and tax administration on tax compliance: The case of the US individual income tax. National Tax Journal 1: 1–13.

    Google Scholar 

  • Young, C., and C. Varner. 2011. Millionaire migration and state taxation of top incomes: Evidence from a natural experiment. National Tax Journal 64 (2): 255.

    Google Scholar 

  • Young, C., C. Varner, I.Z. Lurie, and R. Prisinzano. 2016. Millionaire migration and taxation of the elite: Evidence from administrative data. American Sociological Review 81 (3): 421–446.

    Google Scholar 

  • Zanger, S.C. 2000. A global analysis of the effect of political regime changes on life integrity violations, 1977–93. Journal of Peace Research 37 (2): 213–233.

    Google Scholar 

Download references

Acknowledgements

The authors thank Weiwei Ye, Yifei Gu, Minzi Zhou for excellent research assistance.

Author information

Authors and Affiliations

  1. Department of Public Administration, School of International Relations and Public Affairs, Fudan University, Shanghai, 200433, China

    Bingdao Zheng

  2. Institute for Advanced Study in Social Sciences, Fudan University, Shanghai, 200433, China

    Yanfeng Gu

  3. Department of Political Science, School of International Relations and Public Affairs, Fudan University, Shanghai, 200433, China

    Duo Xu

Authors
  1. Bingdao Zheng
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Yanfeng Gu
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Duo Xu
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Yanfeng Gu.

Ethics declarations

Conflict of interest

On behalf of all authors, the corresponding author states that there is no conflict of interest.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Zheng, B., Gu, Y. & Xu, D. No Taxation Without Representation? An Empirical Examination of the Relationship Between Democratization and Tax Compliance. Chin. Polit. Sci. Rev. 5, 200–221 (2020). https://doi.org/10.1007/s41111-019-00131-3

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s41111-019-00131-3

Keywords

Search

Navigation