Maximizing Tax Revenue While Minimizing Political Costs

Abstract

ABSTRACT Tax revenue is a function of laws and administration as well as economic activity. Four different theories purport to explain revenue-raising in contemporary Western nations: universal abstractions about economic systems; national culture: tax-specific characteristics; avoiding political costs through political inertia. OECD data on taxation in Western nations since 1955 show that national tax systems do not have sufficient in common to validate universalistic generalizations Tax-specific influences can be identified only for a few major sources of revenue. The inertia persistence of substantial national distinctiveness reflects a non-decision making approach to tax policy by politicians. The strategy is to rely primarily upon revenue-buoyant taxes authorized by past legislation rather than risk the political blame for introducing new taxes to raise large amounts of needed additional revenue.

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