The institutional and political factors which influence taxation

Abstract

The ability of politicians to concentrate the benefits of spending, while dispersing the costs of taxation makes taxation attractive (distributive politics), but the degree to which it is attractive varies widely among the states. The objective of the research was to develop a fully specified model of per capita tax revenues of state governments (not state plus local), and thereby identify the political and institutional factors which cause the attractiveness of taxation to vary. The resulting model includes 17 significant explanatory variables, which together account for all but 10% of the variation in per capita tax revenue. Thirteen of the significant variables are institutional or political factors, thus providing decisionmakers specific options for influencing the future size of government.