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On the political economics of tax reforms

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  • Castanheira, Micael
  • Nicodème, Gaëtan
  • Profeta, Paola

Abstract

There is often a gap between the prescriptions of an “optimal” tax system and actual tax systems, some of which can be neither efficient economically nor efficient at redistributing income. With a focus on personal income taxes, this paper reviews the political economics literature on tax systems and reforms to see whether political mechanisms allow us to better understand why tax systems look the way they look. Finally, we exploit a database of reforms in labour taxation in the European Union to check the determinants of all reforms, on the one hand, and of targeted reforms, on the other hand. The results fit well with political economy theories and show that political variables carry more weight in triggering reforms than economic variables. This shed light on whether and how tax reforms are achievable. It also explains why many reforms that seem economically optimal fail to be implemented.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8507.

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Date of creation: Aug 2011
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Handle: RePEc:cpr:ceprdp:8507

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Keywords: personal income tax; political economy; taxation;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Tax reform: Politics has more weight than Economics
    by Economic Logician in Economic Logic on 2011-08-30 14:44:00
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Cited by:
  1. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
  2. Larisa Lubarova & Oleg Petrushin & Artur Radziwill, 2000. "Is Moldova Ready to Grow? Assessment of Post-crisis Policies (1999-2000)," CASE Network Studies and Analyses 0220, CASE-Center for Social and Economic Research.
  3. Doris Prammer, 2011. "Quality of taxation and the crisis: Tax shifts from a growth perspective," Taxation Papers 29, Directorate General Taxation and Customs Union, European Commission.
  4. Lars P. Feld & Christoph A. Schaltegger, 2012. "Die Politische Ökonomik der Besteuerung," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 13(1-2), pages 116-136, 02.
  5. European Commission, 2010. "Tax Policy after the Crisis: Monitoring Tax Revenues and Tax Reforms in EU Member States 2010 Report," Taxation Papers 24, Directorate General Taxation and Customs Union, European Commission.

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