BUSINESS AND LOCAL TAXATION IN THE PHILIPPINES

Abstract

AbstractThis article argues that weak local governments increase levels of taxation by “borrowing” institutional capacity from certain types of businesses. While many businesses lobby against taxation, businesses that are locally owned, nationally connected, and logistically complex build robust associations that support taxation. These types of businesses benefit from improvements in public infrastructure, so they empower their associations to monitor members’ tax compliance and to pressure officials to uphold their spending commitments. The article demonstrates the necessity of business support for taxation in the absence of state capacity by comparing two Philippine cities that differ in their ability to tax despite a number of similarities between them. The case studies show that tax increases co-varied with business support, and that business support waxed and waned depending on over-time variation in the capability of business associations to discourage tax evasion and to enforce official commitments to spend on infrastructure.