A positive model of tax reform

This paper is devoted to the explanation of tax policy from a behavioural-theoretic point of view. It, for the first time, brings together within a unified framework behavioural determinants of government expenditure, taxation, and tax reform. Administrative and compliance costs associated with taxation (factors generally neglected in models of taxation), as well as tax avoidance/evasion, deadweight losses, and the costs that are involved in the tax reform process itself, play a crucial role in the model. The paper investigates how these factors influence the development of taxation and expenditure, and the occurrence of tax reform.This paper has been presented at the Congress of the European Public Choice Society, Linz (Austria), 1989. The authors would like to thank Jos de Beus, Kees Goudswaard, Hans de Groot and Jean-Dominique Lafay for their useful comments. This paper is based on our Dutch publication Belastinghervorming en politieke economie, in Belastingheffing en belastinghervorming, pp. 179–211. Preadviezen Koninklijke Vereniging voor de Staathuishoudkunde 1988. Leiden/Antwerpen: Stenfert Kroese.     

The limits of incrementalism: Carter's efforts at tax reform

Candidate Jimmy Carter adopted tax reform as a major presidential campaign issue in 1976, calling the tax system “a disgrace to the human race” and promising greater equity, efficiency, and simplicity. As president, however, Carter failed in his efforts to effect tax reform, primarily because he did not make his reform proposals sweeping or radical enough. This failure suggests that a policy of incrementalism, of step-by-step legislative change, has serious limits when applied to a long-entrenched governmental program. Incremental change may be appropriate for advancing or extending social programs but insufficient for curbing them or substantially shifting their direction.     

State and local tax reform for the 1990s: Implications from Arizona

The state of Arizona recently established a temporary, blue-ribbon committee to evaluate the state's fiscal system and to recommend changes that would improve the system. The impetus for the committee was a series of budgetary difficulties in the 1980s that lawmakers hoped might be avoided in the future by implementing major structural changes suggested by a long-run analysis of the state's economy and taxes and expenditures. The findings and recommendations of the committee are relevant for states across the country. It is likely that many states will be faced with tough budgetary challenges in the decade of the 1990s because the states' revenue systems have not adapted to the changes in the level and nature of state spending responsibilities.     

Federal tax reform and the financing of state and local governments

Although the Reagan Administration tax reform proposals would reduce federal income tax liabilities for most taxpayers, federal tax reform would also create strong pressures on state and local governments to cut taxes and public services. These pressures would arise primarily because itemizers would no longer be able to deduct state and local taxes in determining their federal income tax liabilities. In New York City and Boston, it is likely that the Administration's tax reform would induce cuts in spending that range from 2.5 to 7.5 percent. While the elimination of state and local tax deductibility may promote allocative efficiency in the provision of local public goods, the cost would be a decline in the degree of redistribution through the state and local public sector, and a reduction in local public services for the poor.     

A comparative modeling of tax reform before and after the legislative process

This research modeled the extent to which the normative goals of equity and efficiency are embodied in three seminal tax reform proposals (Bradley-Gephardt, Kemp-Kasten, and the Treasury Department proposals) relative to the extant regime. The Tax Reform Act of 1986 (TRA86) is also modeled in the same manner. The objective of this study is to compare the equity and efficiency of the initial proposals with that of the final tax reform law. This before and after analysis is designed to ascertain the degree to which the legislative process undermined the normative goals of the tax reform movement. The National Tax Model was applied to model each regime and to measure the distributional and redistributional effects on tax burdens and wage efficiency costs associated with each system across ten income classes. The reform models, including TRA86, are shown as superior to the pre-reform system with respect to the normative criteria. The legislative process did not substantially compromise the goals as reflected in the seminal reform proposals in the development of a more politically acceptable tax reform law. This exercise demonstrates that it is possible for sound legislation to survive a political process that frequently permits the sacrificing of normative goals in favor of special interests.Financial support provided by the Arthur Young Foundation Tax Research Grant Program and The Ralph E. Kent Fund. The helpful suggestions of Jim Curtis were sincerely appreciated.     

Governmental policies to reduce tax evasion: coerced behavior versus services and values development

Governments generally have at their disposal two types of tax compliance policies. One set of policy options coerces tax compliance by increasing risks for practicing tax evasion, while a second set of policies emphasizes development of supportive taxpaying values among citizens through service improvement and informational strategies. Tax agencies tend to favor coercive policies, but empirical research suggests that such policies are not in themselves fully adequate to fight tax evasion. Four hypotheses are offered which suggest the utility of service and values based policies and the need for increased investment in those areas of tax administration.     

Adversarialism versus legalism: Juridification and litigation in corporate governance reform

Recent reforms of corporate governance law and related litigation rules in the US and in Germany indicate that reports of the spread of adversarial legalism are greatly exaggerated. Politics and legislation in the US since the mid‐1990s have turned quite decisively against shareholder litigation even as corporate governance and securities law reforms have expanded the role and scope of the regulatory state. Germany's extraordinary expansion of financial and corporate governance regulation since the early 1990s exemplifies juridification. Although these reforms included some liberalization of shareholder litigation rules, the changes reflected skepticism towards private litigation and imposed new constraints on the most prevalent forms of shareholder suits. Marketization of economic relations and the era of finance capitalism have produced far more legalism than adversarialism, more regulation than judicialization, and more ex ante transparency rules than ex post litigation remedies.     

Preparing members of congress to make binary decisions on complex policy issues: The 1986 tax reform bill

Throughout 1985 and 1986, the House Committee on Ways and Means undertook a major revision of the federal income tax law. The product was the landmark Tax Reform Act of 1986. Because of the magnitude of the changes contained in this bill, the committee sought new ways of obtaining and disseminating necessary information. This article discusses the congressional policy-making process, the different kinds of information used in congressional decision making, and some new procedures employed by the committee during House action on the 1986 tax reform legislation.     

Idealism versus realism in institutional choice: Explaining electoral reform in Poland

One of the most significant, yet not fully explained, institutional decisions in post‐Communist Europe was Poland's adoption of a moderate proportional representation system for the 1993 general election. This article argues that the new electoral system was not entirely based on any normative notion of democratic governance, and that the adoption did not immediately follow from the assumptions of rational choice theory. The 1993 electoral system was largely attributable to patterns of interaction between political parties that had become known, been practised and accepted since the fall of Communism. In reality, the eventual system was built up incrementally in several stages, but the Polish way of ‘muddling through’, albeit contentious and protracted, seems to have worked well for the Polish people.     

Local governments' monopoly power and local tax reform: Theory and evidence from the U.K.

Public Choice - The paper briefly reviews recent research that adapts and extends the Tiebout model of residential choice, paying special attention to those studies which utilize Hirschman's...     

Voter preferences and party loyalty under cumulative voting: Political behaviour after electoral reform in Bremen and Hamburg

Many electoral systems constrain voters to one or two votes at election time. Reformers often see this as a failing because voters' preferences are both broader and more varied than the number of choices allowed. New electoral systems therefore often permit more preferences to be expressed. In this paper we examine what happens when cumulative voting is introduced in two German states. Even when we allow for tactical considerations, we find that the principle of unconstrained choice is not widely embraced by voters, although in practice, too, many seem to have preferences for more than just one party. This finding has implications for arguments relating to electoral reform as well as how to conceive of party affiliations in multi-party systems.     

How to estimate the policy preferences of party supporters: Disaggregating data from voting advice applications versus modeling survey responses

Valid and reliable estimates of the policy preferences of political parties' supporters are essential for the study of political representation. However, such estimates are not directly available from standard surveys of public opinion, which are typically representative by design only at the national level and rarely ask questions about public support for specific policies. In this article, we explore the possibility to use data from voting advice applications (VAA) to estimate the policy preferences of party supporters. To do that, first, we identify 10 questions on preferences towards issues of public policy that were asked around the same time and with similar wording in traditional surveys of public opinion and in VAAs fielded in Germany and in the Netherlands. Then we compare the VAA data disaggregated by political affiliation of the respondents to the survey data adjusted via multilevel regression modeling with poststratification (MRP). We find strong positive correlations between the estimates derived from both methods, especially after weighting the VAA data. Yet, point estimates are not always very close, and the match is sensitive to the treatment of neutral and ‘don't know’ answers. Overall, our results bode well for the validity of using VAA data in empirical research on political representation.     

The effect of recent tax changes on taxable income: Evidence from a new panel of tax returns

This paper estimates the elasticity of taxable income to the net‐of‐tax share using a panel of tax returns that follows a random sample of taxpayers from 1999 to 2005, spanning the EGTRRA 2001 and JGTRRA 2003 tax changes. Results suggest that the elasticity of taxable income to the current year's net‐of‐tax share lies between 0.3 and 0.4 overall, and that the elasticity of a broader measure of income falls between 0.1 and 0.2 overall, with substantially higher elasticities for taxpayers reporting income in excess of $500,000. © 2009 by the Association for Public Policy Analysis and Management.     

Voting over taxes: the case of tax evasion

This paper studies majority voting on taxes when tax evasion is possible. We characterize the voting equilibrium where the agent with median taxed income is pivotal. Since the ranking of true incomes does not necessarily correspond to the ranking of taxed incomes, the decisive voter can differ from the median income receiver. In this case, we find unconventional patterns of redistribution, e.g., from the middle class to the poor and the rich.     

Intervention analysis of electoral tax cycle: The case of Japan

This paper analyzed the impact of elections on tax policy in Japan using an ARIMA (autoregressive integrated moving average)-intervention analysis from 1953 through 1992. We used discretionary tax revenues, which means the changes in tax receipts attributable to changes in the tax code, rather than automatic tax revenues due to business cycles in the economy. The result of this study shows that there is a political tax cycle in Japan. That is, discretionary tax revenues decrease with a statistically significant amount in a year immediately before elections for the House of Representatives. This may be due to the fact that election timings in Japan with a parliamentary system become endogenous.