Taxation, non tax revenue and democracy

Taxation, Non-‐‑Tax Revenue and Democracy

Wilson Prichard Interna1onal Center for Tax and Development

Background •  Large body of cross-‐country econometric studies of the poli1cal resource curse -‐ but conflic1ng results con1nue aAer more than a decade

•  Why such inconsistency? §  Imprecise indicators – most theories of resource curse focus on sources of government revenue as share of GDP, but most tests use total resource income

§  Problema2c and variable data – most studies use ‘custom’ datasets, many of which have major weaknesses

§  Inconsistent methods – and evidence that capturing complex poli1cal rela1onships using cross-‐country methods can be highly sensi1ve to methods

§  Do not dis2nguish alterna2ve causal pathways, linked to tax and non-‐tax revenue

Research Strategy 1.   Be=er indicators – drawing on ICTD GRD allows us to

focus on government revenue from, respec1vely, non-‐resource taxes and non-‐tax revenue (primarily non-‐renewable natural resources)

2.   Be=er data – Our data is more complete than earlier studies looking at government revenue

3.   Mul2ple econometric methods -‐ Sys-‐GMM, Mean-‐Group, Random and Fixed Effects Logit, Error Correc1on Model

4.   Test mul2ple pathways – tax reliance, total tax revenue, total non-‐tax revenue

Descriptive Data

AFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFG

AGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGO

ALBALBALBALBALBALBALBALBALBALBALBALBALBALBALBALBALBALBALB

AREAREAREAREAREAREAREAREAREAREAREAREAREARE

ARGARGARGARGARGARGARGARGARGARGARGARGARGARGARGARGARGARGARGARGARG

ARMARMARMARMARMARMARMARMARMARMARMARMARMARMARMARMARM

AUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUTAUT

AZEAZEAZEAZEAZEAZEAZEAZEAZEAZEAZEAZEAZEAZEAZEAZEAZEAZEAZE

BDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDIBDI

BELBELBELBELBELBELBELBELBELBELBELBELBELBELBELBELBELBELBELBELBEL

BENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBEN

BFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFA

BGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGDBGD

BGRBGRBGRBGRBGRBGRBGRBGRBGRBGRBGRBGRBGRBGRBGR

BHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHRBHR

BIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIHBIH

BLRBLRBLRBLRBLRBLRBLRBLRBLRBLRBLRBLRBLRBLRBLRBLRBLR

BOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOL

BRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRA

BTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTNBTN

BWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWA

CAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAFCAF

CANCANCANCANCANCANCANCANCANCANCANCANCANCANCANCANCANCANCANCANCANCHECHECHECHECHECHECHECHECHECHECHECHECHECHECHECHECHECHECHECHECHE

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CHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHNCHN

CIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMRCMR

COGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOG

COLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOL

COMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOMCOM

CPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPV

CRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCYPCZECZECZECZECZECZECZECZECZECZECZECZECZECZECZECZECZECZE

DEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEU

DJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJIDJI

DNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNK

DOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOMDOM

DZADZADZADZADZADZADZADZADZADZADZADZADZADZADZADZADZADZADZADZADZA

ECUECUECUECUECUECUECUECUECUECUECUECUECUECUECUECUECUECUECUECUECU

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FJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJIFJI

FRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRAFRA

GABGABGABGABGABGABGABGABGABGABGABGABGABGABGABGABGABGABGABGABGAB

GBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBRGBR

GEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEOGEO

GHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHA

GINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGIN

GMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNB

GNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQGNQ

GRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRCGRC

GTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTMGTM

GUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUYGUY

HNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHNDHND

HRVHRVHRVHRVHRVHRVHRVHRVHRVHRVHRVHRVHRVHRVHRVHRVHRVHRVHRV

HTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTIHTI

HUNHUNHUNHUNHUNHUNHUNHUNHUNHUNHUNHUNHUNHUNHUNHUNHUNHUN

IDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDNIDN

INDINDINDINDINDINDINDINDINDINDINDINDINDINDINDINDINDINDINDINDIND

IRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRLIRL

IRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRNIRN

IRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQIRQ

ISRISRISRISRISRISRISRISRISRISRISRISRISRISRISRISRISRISRISRISRISRITAITAITAITAITAITAITAITAITAITAITAITAITAITAITAITAITAITAITAITAITA

JAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAMJAM

JORJORJORJORJORJORJORJORJORJORJORJORJORJORJORJORJORJORJORJORJOR

JPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPN

KAZKAZKAZKAZKAZKAZKAZKAZKAZKAZKAZKAZKAZKAZKAZKAZKAZ

KENKENKENKENKENKENKENKENKENKENKENKENKENKENKENKENKENKENKENKENKENKGZKGZKGZKGZKGZKGZKGZKGZKGZKGZKGZKGZKGZKGZKGZKGZKGZ

KHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHMKHM

KORKORKORKORKORKORKORKORKORKORKORKORKORKORKORKORKORKORKORKORKOR

KSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSVKSV

KWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTKWTLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAOLAO

LBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBNLBN

LBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBRLBR

LBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBYLBY

LKALKALKALKALKALKALKALKALKALKALKALKALKALKALKALKALKALKALKALKALKA

LSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSO

LTULTULTULTULTULTULTULTULTULTULTULTULTULTULTULTULTULTU

LVALVALVALVALVALVALVALVALVALVALVALVALVALVALVALVALVALVALVA

MARMARMARMARMARMARMARMARMARMARMARMARMARMARMARMARMARMARMARMARMAR

MDAMDAMDAMDAMDAMDAMDAMDAMDAMDAMDAMDAMDAMDAMDAMDA

MDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEXMEX

MKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKDMKD

MLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLI

MMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMRMMR

MNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNEMNE

MNGMNGMNGMNGMNGMNGMNGMNGMNGMNGMNGMNGMNGMNGMNGMNG

MOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZ

MRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRTMRT

MUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUS

MWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWI

MYSMYSMYSMYSMYSMYSMYSMYSMYSMYSMYSMYSMYSMYSMYSMYSMYSMYSMYS

NAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAM

NERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGA

NICNICNICNICNICNICNICNICNICNICNICNICNICNICNICNICNICNICNICNICNIC

NLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNLDNORNORNORNORNORNORNORNORNORNORNORNORNORNORNORNORNORNORNORNORNOR

NPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPLNPL

NZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZLNZL

PAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAK

PANPANPANPANPANPANPANPANPANPANPANPANPANPANPANPANPANPANPANPANPAN PERPERPERPERPERPERPERPERPERPERPERPERPERPERPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHLPHL

PNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNGPNG

POLPOLPOLPOLPOLPOLPOLPOLPOLPOLPOLPOLPOLPOLPOLPOLPOL

PRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRTPRT

PRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRYPRY

QATQATQATQATQATQATQATQATQATQATQATQATQATQATQATQATQATQATQATQATQAT

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SDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDNSDN

SENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSEN

SGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGPSGP

SLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLBSLB

SLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLE

SLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSLVSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSRBSURSURSURSURSURSURSURSURSURSUR

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SWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYRSYR

TCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTCDTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGOTGO

THATHATHATHATHATHATHATHATHATHATHATHATHATHATHATHATHATHATHATHATHA

TJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJKTJK

TKMTKMTKMTKMTKMTKMTKMTKMTKMTKMTKMTKMTKMTKMTKMTKMTKMTKMTKM

TMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMPTMP

TTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTOTTO

TUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUNTUN

TURTURTURTURTURTURTURTURTURTURTURTURTURTURTURTURTURTURTURTURTUR

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VENVENVENVENVENVENVENVENVENVENVENVENVENVENVENVENVENVENVENVENVEN

VNMVNMVNMVNMVNMVNMVNMVNMVNMVNMVNMVNMVNMVNMVNMVNMVNMVNMVNMVNM

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ZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWE

020

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0 .2 .4 .6 .8 1Tax Reliance

Tax Reliance and Polity, 1990-2010

AFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAFGAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGO
















BOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBOLBRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRABRA







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CRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRICRI

CUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUBCUB

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0 10 20 30 40 50Total Tax Revenue as % of GDP

Total Tax Revenue and Polity, 1990-2010

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COGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOGCOG




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020

4060

8010

0Le

vel o

f Dec

mor

acy

(Pol

ity2)

0 20 40 60 80Total Tax Collection as % of GDP

Total Non Tax Revenue and Polity, 1990-2010

Model Specification •  Data from ICTD GRD 1990-‐2010, to maximize completeness and accuracy

•  Three independent variables: tax reliance (tax/total rev), total tax % of GDP, total non-‐tax % of GDP

•  Dependent variable is democracy: Con1nuous variable based on Polity IV for Sys-‐GMM, MG and ECM es1mates, binary variable based on Cheibub et al. 2010

•  Controls from earlier studies: Log GDP, Civil War, Democra1c Diffusion, Growth per capita, popula1on size

Core Results Sys-‐GMM

Sys-‐GMM

CCE-‐MG CCE-‐MG FE Logit FE Logit RE Logit RE Logit ECM ECM

Tax_Rel 15.87*** 20.60*** 7.66** 1.51 10.34

(5.26) (7.62) (3.3890) (1.04) (10.45)

Total Tax -25.56* 51.76 21.69 -6.27* -34.38

(15.22) (35.15) (15.80) (3.74) (26.86)

Total Non-‐tax -29.8*** -155.2** -15.05 -12.59**

-36.0***

(10.1) (66.4) (10.09) (5.36) (13.25)

Groups 152 152 149 144 28 28 157 157 153 153

Obs 2536 2536 2634 2604 458 458 2305 2305 2539 2539

Robustness Checks Tests Results

Longer Lags on Revenue Variables More significant and higher magnitude – including the disappearance of nega1ve coefficients on the total tax variable for Sys-‐GMM and RE Logit

Alterna1ve measures of democracy Significant in most specifica1ons, but not for MG es1mator

Different country groups Results weakened, but generally s1ll significant, without OPEC. Results stronger without OECD.

Different Time Periods Results gradually lose significant going back to 1980, consistent with lower quality data and the rela1onship becoming stronger over 1me

Central government data All significant, but magnitude and significance diminished with less good data

Conclusions Strong evidence of resource curse: Nega1ve impact of either tax reliance or non-‐tax revenue on democracy in all specifica1ons and methods Ambiguous evidence on tax and democracy: Rela1onship is some1mes posi1ve, but most oAen insignificant. May reflect greater complexity of causal processes. Rela2onship operates in levels, not year-‐to-‐year varia2on: Results are stronger with es1mators that focus on longer-‐term changes in composi1on of government revenue, rather than short-‐term varia1on. Be=er Data Ma=ers: All results are much stronger using ICTD Government Revenue Data than when using Haber and Menaldo data on resource income, and post-‐1990 data that accounts for federal states. Cau2on and Transparency are Key: Different methods yield significant vola1lity, as do different data, making comprehensive, transparent, approached cri1cal

Marginal Effects from RE Logit

Results with three and five year lags Sys-‐GMM (3)

Sys-‐GMM (5)

Sys-‐GMM (3)

Sys-‐GMM (5)

RE Logit (3)

FE Logit (5)

RE Logit (3)

RE Logit (5)

Tax_Rel 19.4390** 23.8694** 4.4561*** 7.2327***

(7.9695) (10.0033) (1.6442) (2.0780)

Total Tax 7.0397 22.2667 -2.3642 7.8482

(31.2309) (39.0345) (5.0183) (6.7844)

Total Non-‐tax

-39.0786** -35.7187 -16.4260*** -20.2697***

(17.1580) (32.7934) (5.7189) (6.9277)

Groups 155 152 155 152 156 152 156 152

Obs 2308 2024 2308 2024 2025 1730 2025 1730

Taxation, non tax revenue and democracy

Economy & Finance

Transcript of Taxation, non tax revenue and democracy