The political economy of taxation: lessons from developing countries

Taxation is a major issue in the economic and political spheres. This book focuses on a sample of developing countries from Asia and Latin America that experienced an economic and democratic transition during the period 1990-2004. Using a unique dataset, we show that tax revenue is higher in more democratic regimes, consistent with the standard view that democracies have to satisfy the redistributive needs of the electorate. We also find that a second relationship between the level of democracy and the composition of taxes (mainly direct versus indirect) is much harder to predict. However, a comparison with new EU member states suggests that more mature democracies are associated with higher levels of direct taxes.