Abstract
This chapter mainly investigates the relationship between inequality in landownership and progressive taxation and, moreover, examines whether this relationship is affected by the political institutions within a country. Building on a dataset of 20 countries, located principally in North America and Western Europe, over a period of two centuries, our analysis suggests that preindustrial inequality in the distribution of landownership exerted a negative and statistically significant impact on progressive taxation. In particular, countries which are characterized by larger concentration of land—and, consequently, powerful landed elites—did not implement redistributive tax. This relationship remains robust across a number of alternative specifications and, most importantly, alternative political regimes. In other words, our empirical findings suggest that it is the de facto power of agents (that comes from the distribution of the economic resources) and not the de jure power (which is mainly driven by the political institutions) that determines the implementation of a redistributive tax policy.
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Notes
- 1.
This is because franchise extension shifts the median voter towards the poorer segments of the society .
- 2.
Specifically, Aidt et al. (2010) provide evidence of a U-shaped relationship between spending on urban amenities and extension of local voting franchise in a panel of municipal boroughs in England and Wales. This non-linear relationship is attributed to a retrenchment effect that comes as a result of enfranchisement of the middle class. Likewise, Aidt and Jensen (2013) suggest that franchise extension exhibits a U-shaped association with revenue per capita and a positive association with spending per capita in a panel of European countries over the period 1820–1913. Moreover, Aidt and Jensen (2009b) conclude that the impact of franchise extension on the composition of taxation in nine Western economies during the period 1860–1938 is conditional on the state of the tax-collection technology. Thus, a large strand of the relevant literature concludes that the relationship under investigation is not straightforward, and variations in institutional details in time and space may crucially affect the consequences of democracy on fiscal policy .
- 3.
This type of study implicitly assumes that political power always coincides with the de jure political power and, therefore, concludes that the median voter is the decisive agent for any political outcome (see the Appendix in Acemoglu and Robinson 2006, for more details on this).
- 4.
Galor et al. (2009), using a dataset of US states in the twentieth century, conclude that inequality in landownership affected adversely the emergence of human capital-promoting institutions (public schooling and child labor regulation) and, thus, the pace and nature of the transition from an agriculture to an industrial economy. Similarly, Cinnirella and Hornung (2016) provide evidence of a negative association between large ownership concentration and the expansion of mass education in nineteenth-century Prussia. Finally, Ziblatt (2008) demonstrates that land-holding inequality did affect negatively the prospect of democratization in Prussia, whereas income inequality did not have any significant effect.
- 5.
Stigler (1971), Peltzman (1976) and Becker (1983) emphasize economic and demographic variables such as interest group size, group cohesion, and the technology of tax collection as basic determinants of public policies via their effects on both the public interest and the political success of special-interest groups. To their view, conflicts over policy are mediated by the political leader (whether democratically elected or not), but it is the economic and demographic factors that lead policy decisions.
- 6.
- 7.
- 8.
This is because the overall tax burden does not depend solely on the statutory tax rate , but also on what is defined—by the tax legislation—as tax base. Therefore, we are in need of some more sophisticated tax measures that would take into account changes in the tax base (i.e. changes in allowances, deductions, etc.). For these reasons, a large number of empirical studies exploring issues related to the tax structure rely on effective tax rates rather than statutory tax rates [for more details on the methodology of effective tax rates, see Mendoza et al. (1994) and Volkerink and de Haan (2001)].
- 9.
In particular, they show that statutory top marginal tax rate is highly correlated with the effective income tax rate on incomes—in the top 0.01% of income distributions—for most of North America and Western European countries.
- 10.
For detailed definitions and summary statistics of the control variables, see the Appendix.
- 11.
- 12.
For more details about these variables, see Sect. 3.3.2.
- 13.
According to Mokyr (1990), the power of the landed elites mitigated substantially in most Western European countries after the second phase of Industrial Revolution and especially after 1930. However, since implemented fiscal policy is affected by fiscal commitments and institutions —that exhibit a high degree of persistence—the power of the landed elites in the past may exert significant influence on contemporaneous fiscal policy .
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Appendix: Summary Statistics of Variables
Appendix: Summary Statistics of Variables
Variable |
Description |
Obs. |
Mean |
SD |
Min |
Max |
Source |
|---|---|---|---|---|---|---|---|
Top income tax rate |
Top marginal income tax rate levied by national governments on individuals in the highest income category |
637 |
28.752 |
28.230 |
0 |
97.5 |
Comparative Income Taxation Database (CITD) |
Top income tax rate (national and local) |
Top marginal income tax rate levied by national and subnational governments on individuals in the highest income category |
601 |
35.172 |
29.934 |
0 |
98 |
Comparative Income Taxation Database (CITD) |
Family farms |
Variable that measures resource distribution as a percentage of total cultivated area or of total area of holdings (%) |
527 |
52.722 |
24.219 |
0 |
98 |
Vanhanen (2003) |
Democracy |
Binary variable which equals 1 whenever a political regime is characterized as democratic and 0 otherwise |
633 |
0.670 |
0.465 |
0 |
1 |
Boix et al. (2013) |
Democracy Polity IV |
Index variable which ranges from −10 (extreme autocracy) to +10 (perfect democracy) |
626 |
7.147 |
3.725 |
0 |
10 |
Marshall and Jaggers (2010) |
GDP per capita |
Real GDP per capita in 1990 US dollars |
607 |
7407 |
6718 |
681 |
30930 |
Bolt and van Zanden (2014) |
War mobilization |
Binary variable that takes the value 1 if a country was engaged in an interstate war and at least 2% of the population was serving in the military and 0 otherwise |
640 |
0.033 |
0.147 |
0 |
1 |
|
Left executive |
Binary variable that takes the value 1 during the years that the head of state is member of a left-wing party and 0 otherwise |
640 |
0.174 |
0.328 |
0 |
1 |
Comparative Income Taxation Database (CITD) |
Competitive elections |
Binary variable that takes the value 1 if a country runs free multi-party elections with voting rights to at least 50% of adult males |
640 |
0.661 |
0.468 |
0 |
1 |
Comparative Income Taxation Database (CITD) |
Revenues to GDP |
Continuous variable that indicates tax revenues as a percent of GDP with interpolated missing data |
538 |
20.679 |
15.192 |
0.971 |
59.171 |
IMF |
Income share of top 1% |
Continuous variable that measures the share of pre-tax income earned by the top 1% individuals of the income distribution |
293 |
10.530 |
4.358 |
3.828 |
26.990 |
World Wealth and Income database |
Income share of top 0.01% |
Continuous variable that measures the share of pre-tax income earned by the top 0.01% individuals of the income distribution |
196 |
1.303 |
1.015 |
0.186 |
4.205 |
World Wealth and Income database |
Wealth share of top 1% |
Continuous variable that indicates the share of wealth held by the top 1% individuals of the wealth distribution |
154 |
31.758 |
13.594 |
6.913 |
69 |
|
Domestic debt crises |
Binary variable that takes the value 1 during the years that a country faces a domestic debt crisis and 0 otherwise |
640 |
0.010 |
0.816 |
0 |
1 |
Comparative Income Taxation Database (CITD) |
External debt crises |
Binary variable that takes the value 1 during the years that a country faces an external debt crisis and 0 otherwise |
640 |
0.037 |
0.171 |
0 |
1 |
Comparative Income Taxation Database (CITD) |
Banking crises |
Binary variable that takes the value 1 during the years that a country faces a banking crisis and 0 otherwise |
640 |
0.086 |
0.198 |
0 |
1 |
Comparative Income Taxation Database (CITD) |
Stock market crash |
Binary variable that takes the value 1 during the years that a country faces a stock market crash and 0 otherwise |
640 |
0.188 |
0.254 |
0 |
1 |
Comparative Income Taxation Database (CITD) |
Currency crises |
Binary variable that takes the value 1 during the years that a country faces a currency crisis and 0 otherwise |
640 |
0.076 |
0.158 |
0 |
1 |
Comparative Income Taxation Database (CITD) |
Universal male suffrage |
Binary variable that takes the value 1 during the years that all adult males are eligible to vote in national elections and 0 otherwise |
640 |
0.664 |
0.467 |
0 |
1 |
Comparative Income Taxation Database (CITD) |
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Kammas, P., Poulima, M. (2017). Inequality in Landownership, Democracy, and Progressive Taxation: Evidence from Historical Data. In: Thomakos, D., Nikolopoulos, K. (eds) Taxation in Crisis. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-65310-5_3
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