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On the Political Economics of Tax Reforms: survey and empirical assessment

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  • Micael Castanheira

    (ECARES, Université Libre de Bruxelles, Belgium)

  • Gaëtan Nicodème

    (European Commission, CESifo, CEPR and Université Libre de Bruxelles, Belgium)

  • Paola Profeta

    (Università Bocconi, Econpubblica and Dondena, Italy, CESifo)

Abstract

Political constraints and incentives are the true driver of tax reforms. This paper reviews the political economics literature on personal income tax systems and reforms to see how political mechanisms help explain tax reforms. We take some of the implications of these theories to the data using LABREF, a database that identifies labor tax reforms in the European Union for the period 2000-2007, and control for economic and labor market factors. We find that political variables carry more weight than economic variables, and we show empirical regularities that support political economy theories. We also find that governments tended to reform more in better economic times, engaging in pro-cyclical behavior.

Suggested Citation

  • Micael Castanheira & Gaëtan Nicodème & Paola Profeta, 2012. "On the Political Economics of Tax Reforms: survey and empirical assessment," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS 2012-08-ccr, Condorcet Center for political Economy.
  • Handle: RePEc:tut:cccrwp:2012-08-ccr
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    More about this item

    Keywords

    political economy; taxation; personal income tax; LABREF;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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