How Governments Respond to Business Demands for Tax Cuts: A Study of Corporate and Inheritance Tax Reforms in Austria and Sweden

Abstract

How responsive are democratic governments to business demands for tax cuts? We research this question in comparative case studies of cuts in corporate taxes and inheritance taxes in Austria and Sweden. We find that governments, regardless of partisan composition, are responsive to business demands, but that fiscal and electoral goals attenuate responsiveness. In both countries, the limited revenues generated by inheritance taxation and greater alignment of business demands with middle‐class voter interests resulted in governments heading business demands for an abolition of this tax. Goal conflict were larger for corporate tax cuts. In both countries, governments tried to minimize these goal conflict by adopting compensatory policy measures, specifically measures to broaden the tax base and simultaneous tax cuts for low‐income groups. The findings suggest that the policy output of business‐friendly tax cuts reflect a balancing of conflicting goals, rather than outright business dominance.