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Taxation and political stability

  • Mutascu, Mihai
  • Tiwari, Aviral
  • Estrada, Fernando

The present study is, in particular, an attempt to test the relationship between tax level and political stability by using some economic control variables and to see the relationship among government effectiveness, corruption, and GDP. For the purpose, we used the Vector Autoregression (VAR) approach in the panel framework, using a country-level panel data from 59 countries for the period 2002 to 2008. The salient features of this model are: (a) simplicity is based on a limited number of variables(five) are categorical or continuous and not dependent on complex interactions or nonlinear effects. (b) accuracy: a low level of errors, the model achieves a high percentage of accuracy in distinguishing countries with inclination to political instability, compared to countries with political stability, (c) generality: the model allows to distinguish types of political instability, both resulting from acts of violence and failure of democracies to show, and (d) novelty: the model incorporates a tool that helps evaluate and exclude many variables used by the conventional literature. This approach is mainly based on the recognition of state structures and the relations between elites and parties.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32272.

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Date of creation: 16 Jul 2011
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Handle: RePEc:pra:mprapa:32272
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  1. Sören Blomquist & Luca Micheletto, 2005. "Optimal Redistributive Taxation when Government’s and Agents’ Preferences Differ," CESifo Working Paper Series 1429, CESifo Group Munich.
  2. Joshua Aizenman & Yothin Jinjarak, 2008. "The collection efficiency of the Value Added Tax: Theory and international evidence," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(3), pages 391-410.
  3. Weingast, Barry R., 2009. "Second generation fiscal federalism: The implications of fiscal incentives," Journal of Urban Economics, Elsevier, vol. 65(3), pages 279-293, May.
  4. Marina Azzimonti, 2009. "Barriers to investment in polarized societies," 2009 Meeting Papers 1233, Society for Economic Dynamics.
  5. Palan, Ronen, 2002. "Tax Havens and the Commercialization of State Sovereignty," International Organization, Cambridge University Press, vol. 56(01), pages 151-176, December.
  6. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  7. Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989. "Seigniorage and Political Instability," NBER Working Papers 3199, National Bureau of Economic Research, Inc.
  8. Bohn, Frank, 2002. "Public Finance under Political Instability and Debt Conditionality," Economics Discussion Papers 8843, University of Essex, Department of Economics.
  9. Estrada, Fernando, 2010. "Devouring the Leviathan: fiscal policy and public expenditure in Colombia," MPRA Paper 21981, University Library of Munich, Germany.
  10. Ceyhun Elgin, 2010. "Political Turnover, Taxes and the Shadow Economy," Working Papers 2010/08, Bogazici University, Department of Economics.
  11. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  12. Dhaneshwar Ghura & Benoît Mercereau, 2004. "Political Instability and Growth; The Central African Republic," IMF Working Papers 04/80, International Monetary Fund.
  13. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
  14. Feng, Yi, 1997. "Democracy, Political Stability and Economic Growth," British Journal of Political Science, Cambridge University Press, vol. 27(03), pages 391-418, July.
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  16. Fabrizio Carmignani, 2003. "Political Instability, Uncertainty and Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 17(1), pages 1-54, February.
  17. Volkerink, Bjørn & Haan, Jakob de, 1999. "Political and institutional determinants of the tax mix : an empirical investigation for OECD countries," Research Report 99E05, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
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  19. Ivo Bischoff & Wolfgang Gohout, 2010. "The political economy of tax projections," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 133-150, April.
  20. Christian B. Mulder & Matthieu Bussière, 1999. "Political Instability and Economic Vulnerability," IMF Working Papers 99/46, International Monetary Fund.
  21. Bell, Stephanie, 2001. "The Role of the State and the Hierarchy of Money," Cambridge Journal of Economics, Oxford University Press, vol. 25(2), pages 149-63, March.
  22. Janvier D. Nkurunziza, 2005. "Political Instability, Inflation Tax and Asset Substitution in Burundi," Journal of African Development, African Finance and Economic Association, vol. 7(1), pages 42-72.
  23. Devereux, Michael B. & Wen, Jean-Francois, 1998. "Political instability, capital taxation, and growth," European Economic Review, Elsevier, vol. 42(9), pages 1635-1651, November.
  24. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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