Characterising political regimes, institutions, and tax efforts

The major purpose of taxation is to raise resources (sufficient revenue) to finance government expenditure. The problem of tax design is finding realistic and efficient ways for raising these resources. An efficient tax design is politically and administratively feasible and promotes both equity and efficiency as far as is possible. Democratic regimes exist where governments are dependent on popular support, and where they have to face the test of elections. An economic crisis suggests the necessity of implementing policies that are likely to be out of favor and harm entrenched interests. The level and structure of taxation is strongly and significantly affected by economic, social and political institutions. In both developed and developing countries, ideas, interests, and institutions play a central role in shaping tax policy. The empirical results gained from the panel regression analysis for more than sixty countries during the period from 1990 to 2004 test the main idea of this dissertation in which both political regimes (democratic/dictatorship) and institutions have strong and significant impacts on tax effort in both developed and developing countries. Empirical results show the impact of efficient institutions, especially, property rights, legal system, governmental efficiency, and controlling corruption on tax equity and efficiency. The results show that different political regimes and institutional performance matter for tax effort. In conclusion, political regimes and institutions matter and significantly affect tax effort in both developed and developing countries. Improving tax effort is expected to be more efficient economically, socially, and politically through enhancing the quality and efficiency of institutions in any economy or political regime.