The tax-welfare mix: explaining Japan's weak extractive capacity

Abstract

Despite having the highest level of public debt in the Organisation for Economic Co-operation and Development (OECD), higher than Greece or Italy, Japan has one of the lowest aggregate tax burdens of the advanced industrial democracies. This paper asks why Japan, once described as a strong developmental state, has had such a weak extractive capacity, an inability to raise revenues to confront deficits and public debt? In contrast to the existing explanations that focus on political institutions, partisan preferences, or economic globalization, this article argues that Japan's ‘tax–welfare mix’ – the combination of taxes and redistributive welfare polices – undermined the state's long-term capacity to secure adequate tax revenue. More than just a source of revenue, taxes can be used directly to achieve redistributive goals, such as targeting low taxes and exemptions to specific groups. This study shows how Japan's tax–welfare mix diminished its extractive capacity through three mechanisms: the political lock-in of a redistributive social bargain struck around low taxes, the timing and sequencing of its tax policy and welfare development, and the erosion of public trust, which undermined tax consent. Beyond offering a new theory of extractive capacity, the tax–welfare mix explains aspects of Japan's tax structure that defy existing explanations and contributes to our understanding of the capitalist development state by highlighting the redistributive political function of tax policy and its long-term impact on state capacity.     

The Use and Efficacy of Capacity‐Building Assistance for Low‐Performing Districts: The Case of California's District Assistance and Intervention Teams

The theory of action upon which high‐stakes accountability policies are based calls for systemic reforms in educational systems that will emerge by pairing incentives for improvement with extensive and targeted technical assistance (TA) to build the capacity of low‐performing schools and districts. To this end, a little discussed and often overlooked aspect of the No Child Left Behind Act (NCLB) mandated that, in addition to sanctions, states were required to provide TA to build the capacity of struggling schools and Local Education Agencies (LEAs, or districts) to help them improve student achievement. Although every state in the country provides some form of TA to its lowest performing districts, we know little about the content of these programs or about their efficacy in improving student performance. In this paper, we use both quantitative and qualitative analyses to explore the actions taken by TA providers in one state—California—and examine whether the TA and support tied to California's NCLB sanctions succeeds in improving student achievement. Like many other states, California requires that districts labeled as persistently failing under NCLB (in Program Improvement year 3, PI3) work with external experts to help them build the capacity to make reforms that will improve student achievement. California's lowest performing PI3 districts are given substantial amounts of funding and are required to contract with state‐approved District Assistance and Intervention Teams (DAITs), whereas the remaining PI3 districts receive less funding and are asked to access less intensive TA from non‐DAIT providers. We use a five‐year panel difference‐in‐difference design to estimate the impacts of DAITs on student performance on the math and English language arts (ELA) standardized tests relative to non‐DAIT TA during the two years of the program intervention. We find that students in districts with DAITs perform significantly better on math California Standards Tests (CSTs) averaged over both treatment years and in each of the first and second years. We do not find evidence that students in districts with DAITs perform higher on ELA CSTs over the combined two years of treatment, although we find suggestive evidence that ELA performance increases in the second year of treatment relative to students in districts with non‐DAIT TA. Ordinary least squares (OLS) regressions that explore the association between specific activities fostered by DAITs and changes in districts’ gains in achievement over the two years of treatment show that DAIT districts that report increasing their focus on using data to guide instruction, shifting district culture to generate and maintain high expectations of students and staff, and increasing within‐district accountability for student performance, have higher math achievement gains over the course of the DAIT treatment. In addition, DAIT districts that increase their focus on ELA instruction and shift district culture to one of high expectations have higher ELA achievement gains than do DAIT districts that do not have a similar focus. © 2012 by the Association for Public Policy Analysis and Management.     

Do Group Decision Rules Affect Trust? A Laboratory Experiment on Group Decision Rules and Trust

Enhanced participation has been prescribed as the way forward for improving democratic decision making while generating positive attributes like trust. Yet we do not know the extent to which rules affect the outcome of decision making. This article investigates how different group decision rules affect group trust by testing three ideal types of decision rules (i.e., a Unilateral rule, a Representative rule and a ‘Non‐rule’) in a laboratory experiment. The article shows significant differences between the three decision rules on trust after deliberation. Interestingly, however, it finds that the Representative rule yields more trust than the Non‐rule and also significantly more trust than the Unilateral rule, when analysing the results at group level. These findings challenge the theoretical understanding by, for example, deliberative normative theorists that more inclusive, consensual and non‐hierarchical decision‐making procedures enhance trust vis‐à‐vis other more hierarchical decision‐making procedures.     

Strategic Involuntary Teacher Transfers and Teacher Performance: Examining Equity and Efficiency

Despite claims that school districts need flexibility in teacher assignment to allocate teachers more equitably across schools and improve district performance, the power to involuntarily transfer teachers across schools remains hotly contested. Little research has examined involuntary teacher transfer policies or their effects on schools, teachers, or students. This article uses administrative data from Miami‐Dade County Public Schools to investigate the implementation and effects of the district's involuntary transfer policy, including which schools transferred and received teachers, which teachers were transferred, what kinds of teachers replaced them in their former schools, and how their performance—as measured by their work absences and value‐added in math and reading—compared before and after the transfer. We find that, under the policy, principals in the lowest performing schools identified relatively low‐performing teachers for transfer who, based on observable characteristics, would have been unlikely to leave on their own. Consistent with an equity improvement, we find that involuntarily transferred teachers were systematically moved to higher performing schools and generally were outperformed by the teachers who replaced them. Efficiency impacts are mixed; although transferred teachers had nearly two fewer absences per year in their new positions, transferred teachers continued to have low value‐added in their new schools.     

Taxation and the Unequal Reach of the State: Mapping State Capacity in Ecuador

Even though the unequal reach of the state has become an important concern in the literature on developing democracies in Latin America, empirical measures of intracountry variation in state capacity are scarce. So far, attempts to develop valid measures of the reach of the state have often been hampered by inadequate data. Leveraging insights from national‐level scholarship, this article proposes a tax‐based measure to capture such intracountry variation. Drawing on a comprehensive data set of municipal finance and estimates of economic activity derived from nighttime lights, it maps state capacity in Ecuador. The article validates the measure on the basis of survey data collected by the Latin American Public Opinion Project. A multilevel analysis demonstrates that citizens tend to be more satisfied with the services provided by the state in municipalities with higher state capacity, which strengthens confidence that the measure picks up relevant differences.     

Partisan turnout bias and district magnitude

This article examines how the partisan turnout bias (i.e. turnout rate differences across districts that are linked to the partisan vote shares in those districts) changes over time in PR districted electoral systems. We argue that the bias after the founding election is the unintended consequence of parties and voters' strategic behaviors when they respond to the incentives provided by the electoral system. By looking at the case of Portugal, one of the countries with the largest variation in district magnitude, we find that the increasing asymmetry in turnout rates across districts makes the bias more severe as time goes by.     

Local Government Responses to Fiscal Stress: Evidence from the Public Education Sector

This article investigates local government responses to fiscal stress through the lens of the K–12 public education sector, examining two major policy options available to school districts for managing fiscal hardship: (1) cutting costs, especially through layoffs, and (2) raising revenues locally through voter referenda. The article employs district‐level administrative and survey data from California and Indiana to examine whether school districts exhibit features of a rational or natural system—in which their behaviors largely reflect fiscal pressures only—or whether they exhibit features of an open system in which nonfinancial factors also shape responses. In Indiana, district fiscal characteristics explain differences in cost‐cutting and revenue‐raising behaviors; there is little empirical evidence that school districts exhibit features of an open system. In California, both fiscal and environmental attributes, including poverty characteristics, average student achievement levels, and the enrollment of English learner students, explain school district behaviors.     

Are Voters Equal under Proportional Representation?

We develop and apply a new conceptual framework and measure for evaluating electoral systems, focusing on (in)equality in parliamentary representation. Our main arena of interest is proportional representation with districts, an electoral system employed by more than half of democratic states, and we draw on an almost entirely overlooked fact: Electoral regimes vary substantially within countries, with some voters casting their ballot in semi‐majoritarian districts of few representatives and others in large and proportional ones. This within‐country institutional variation, we contend, affects representational (in)equality. Evaluating equality in parliamentary representation, we demonstrate that districted proportional representation often leads to overrepresentation of voters supporting right‐leaning parties. Utilizing district‐level data from 20 Western parliamentary democracies and complementing our within‐country approach with a cross‐country analysis, we further show that where parliaments are elected by large and small districts, representational inequality among voters is greater compared with countries in which parliament is elected by even‐magnitude districts.     

Tax and Expenditure Limitations and the Fiscal Response of Local Government: Asymmetric Intra-Local Fiscal Effects

This article empirically investigates the effects of introducing statewide measures to limit the ability of local jurisdictions to raise revenue or make expenditures. It does so in intervals of five years over a 25-year period, using fiscal observations for 31,804 units of local government in 787 metropolitan counties across the contiguous United States. Specifically explored is the effect of tax and expenditure limitations on the variation in revenues and expenditures between general purpose governments and school districts within county areas. Rather than imposing a uniform constraint across jurisdictions, tax and expenditure limitations (TELs) are associated with increased variation across both general purpose and school district revenues and expenditures and, by implication, increased service differentials. Effects are found to be asymmetric, with increased variation greatest within counties comprising the urban core and those with relatively more disadvantaged populations. The implications are that TELs are most constraining on the ability of governments serving economically less prosperous and at risk populations to meet public service needs. Such differential effects are of more than questionable merit and are the result of the application of blunt instruments to what is often an undemonstrated need. The outcome impairs both the efficiency and responsiveness of the local public sector.     

“Robin Hood” and Texas School District Borrowing Costs

The “Robin Hood” system of school financing in Texas takes property tax funds from wealthy school districts and gives them to poorer districts. This paper examines Permanent School Fund‐insured, school district debt and discovers that under the “Robin Hood” system, Texas school districts with either Aa or A1 underlying credit ratings have higher borrowing costs than districts with lower ratings. Also, the borrowing costs of Texas school districts with underlying credit ratings of Aa and A1 are higher than those for non‐Texas, privately insured school districts with the same ratings, while the borrowing costs of A and Baa‐rated Texas school districts are lower.     

The early modern origins of contemporary European tax outcomes

What explains variation in tax outcomes between European states? Previous studies emphasise the role played by political institutions, but focus mostly on the input side of politics – how access to power and policy making is structured – and the institutions of relatively recent times. It is argued in this article that output‐side institutions related to the implementation of political decisions also matter and have deep institutional origins. As the classic literature has argued, the early modern period from 1450 to 1800 was formative for the development of fiscal capacity, but European states diverged in the stock of capacity they acquired. This article tests whether these differences still affect contemporary tax outcomes using a novel measure of fiscal capacity, based on the age, extent and quality of state‐administered cadastral records. The empirical analysis shows that, on average, countries with higher early modern fiscal capacity have higher tax revenue today, compared to countries with lower early modern fiscal capacity. This association is robust to different model specifications and alternative measurements. The findings have important policy implications as they indicate how deeply the current fiscal problems of the continent are entrenched, but also point to what needs to be prioritised within ongoing tax reforms.     

Does political trust matter? An empirical investigation into the relation between political trust and support for law compliance

Scholars have repeatedly expressed concern about the consequences low levels of political trust might have for the stability of democratic political systems. Empirical support and the identification of causal mechanisms for this concern, however, are often lacking. In this article, the relation between political trust and law‐abiding attitudes is investigated. It is expected that citizens with low levels of trust in the institutions of the political system will find it more acceptable to break the law. As a result, low levels of political trust might undermine the effectiveness and legitimacy of government action and its ability to implement legislation. Based on survey data from 33 European countries using the 1999–2001 European Values Study (N = 41,125), the relation between political trust and legal permissiveness is examined using a multilevel ordered logistic regression analysis. The results show that respondents with low levels of political trust are significantly more likely to accept illegal behaviour such as tax fraud than respondents with high levels of political trust. Since it is known from earlier research that actors who are permissive towards law‐breaking behaviour are more likely to commit these acts themselves, the hypothesis that low levels of political trust will be associated with less law compliance within a society is supported.     

From Leviathan to Gulliver? The Decline of the Developmental State in Brazil

This article advances an institutionalist explanation for the decline of Brazil's developmental state, showing how an initially strong state undermined its own strength over time. The Brazilian state greatly expanded its interventionism and fragmented society—through state-corporatist mechanisms—in order to enhance its power to guide development. Yet the mushrooming state apparatus increasingly lacked internal coordination. This disunity diminished the state's capacity to attain its goals and provided added opportunities for the fragmented social groups created by the state's divide-and-rule strategies to "capture" public agencies. The resulting weakening of the state is evident in taxation, the policy focus of this article. Competing state agencies granted proliferating tax privileges, and business sectors supported by clientelist politicians blocked governmental efforts to maintain or raise the tax burden. This decline in extractive capacity contributed to the fiscal crisis that has paralyzed Brazil's developmental state since the early 1980s.     

Local Districts,National Contexts,and the Number of Parties

To date, electoral systems are conceptualised as setting an ‘upper bound’ to, or defining a ‘carrying capacity’ for, the number of parties or lists, and their effect is assessed at the district level. This article adds to the empirical study of electoral systems by analysing a vast database of district-level electoral returns. The argument focuses on the demand and supply of viable electoral candidates, which are conditioned by the interplay of strategic entry (by the party rank and file) and strategic voting (by the electorate). Drawing on a database of almost 18,000 electoral districts taken from 15 West European countries, the empirical analysis yields a number of insights: most specifically, (1) district magnitude only becomes binding and effective when a higher social demand meets a lower carrying capacity of the electoral district; (2) the provision of upper tiers undermines the emergence of Duvergerian equilibria within the primary electoral districts.     

The Politics of Local Government Stabilization Funds

The adoption, maintenance, and prudent use of budgetary stabilization funds are fundamental financial management precepts, yet the variables that influence the size of these funds are poorly understood. This article contributes to the stabilization fund literature by examining the extent to which variation in stabilization fund balances across municipalities and over time can be explained by a community's political culture and financial management capacity. The balanced panel research design includes archival data for 239 Massachusetts municipalities for each of 18 fiscal years. Stabilization fund balances are lower in communities with either an anti‐tax or a pro‐spending political culture. Stabilization fund balances are higher in communities that have the financial management capacity to accumulate budget surpluses that can be made available for appropriation to stabilization funds. Communities with the open town meeting form of government also have higher stabilization fund balances.     

Inconvenient Truth? Do Collective Bargaining Agreements Help Explain the Mobility of Teachers within School Districts?

We utilize detailed teacher‐level longitudinal data from Washington State to investigate patterns of teacher mobility in districts with different collective bargaining agreement (CBA) transfer provisions. Specifically, we estimate the log odds that teachers of varying experience and effectiveness levels transfer out of their schools to other schools in the district in Washington kindergarten through 12th grade (K‐12) public schools. We find little consistent evidence relating voluntary transfer provisions in CBAs to patterns in teacher mobility, but do find evidence that patterns in within‐district mobility by teacher experience and effectiveness vary between districts that do not use seniority in involuntary transfer decisions and those that use seniority as a tiebreaker or the only factor in these moves. In models that consider teacher experience, the interaction between teacher experience and school disadvantage in teacher transfer decisions is more extreme in districts with strong involuntary seniority transfer protections; novice teachers are even more likely to stay in disadvantaged schools, and veteran teachers are even more likely to leave disadvantaged schools. On the other hand, models that consider value‐added measures of teacher effectiveness suggest that more effective teachers are less likely to leave disadvantaged schools in districts that do use seniority in involuntary transfer decisions, that is, seniority transfer provisions could actually make the distribution of output‐based measures of quality more equitable. Taken together, these results suggest that seniority transfer provisions may have differential impacts on the distributions of teacher experience and effectiveness.     

Geographical redistribution with disproportional representation: a politico-economic model of Norwegian road projects

Politicians bias public policies to favor particular election districts. According to the traditional common pool model, districts facing low tax shares should receive relatively large government projects. We suggest a swing-voter model where the number of voters on the ideological cut point, lack of party identification and number of district representatives per voter determine project sizes. We analyze the allocation of state road investments in Norway from 1973–1997 exploiting unique data on characteristics of voters, legislative representation and tax prices in 19 election districts. Geographical representation to parliament is biased, mostly due to an ancient constitution. Shares of swing voters and legislative over-representation lead to higher levels of road investments, while high levels of party identification reduce investments.     

The effect of school district and municipal government financial health information on local tax election outcomes: evidence from fiscal stress labels in Ohio

A key informational asymmetry in local public finance is the lack of information available to local residents regarding the financial status of the school districts and local governments in which they reside. Given that voters in many states must approve property and income tax increases for these local entities, the lack of full information on the financial status of these local entities may lead to sub-optimal voting decisions. State financial intervention systems have begun to make financial problems more salient to residents, potentially alleviating these informational asymmetries. This paper examines the effect of the Ohio fiscal stress labeling program on voting outcomes and the tax-setting behavior of local officials for school district and municipal government tax referendums. We use a difference-in-differences approach to examine data from over 3000 school district and 2300 municipality property tax elections from 2004 to 2012. While we find minimal evidence that the yes vote share changed for school district referendums following fiscal stress label receipt, we find very large increases (15 to 23 percentage points) in the likelihood of referendum passage for school districts following label receipt. We do not find much evidence of changes in the likelihood of passage or the yes vote share following label receipt for municipalities, but we do find that these voting outcomes rise following label removal. We also find that local officials do not appreciably change their tax-setting behavior in response to these labels, as the size and likelihood of property tax proposal are largely unchanged following label receipt or removal.     

The Effect of Electoral Geography on Pork Barreling in Bicameral Legislatures

How does the electoral geography of legislative districts affect pork barreling? This article presents a formal model extending Mayhew's classic credit‐claiming theory to account for the electoral geography of bicameralism. Under bicameralism, upper chamber (Senate) and lower chamber (Assembly) legislators who share overlapping constituencies must collaborate to bring home pork projects. Collaboration is easier between a Senator and an Assembly Member who share a large fraction of their constituents and thus have relatively aligned electoral incentives. But dividing a Senate district into a larger number of Assembly district fragments misaligns these electoral incentives for collaboration, thus reducing equilibrium pork spending. Hence, increased Senate district fragmentation causes a decrease in equilibrium spending. I exploit the 2002 New York Senate expansion as a natural experiment, examining how sudden changes in the geographic fragmentation of Senate districts account for differences in the distribution of pork earmarks immediately before and after the redrawing of district boundaries.     

Private tax collection—remnant of the past or a way forward? Evidence from rural Uganda

This article examines the growing role and impacts of private tax collection under fiscal decentralisation in Uganda. Based on evidence from six rural councils, three aspects of privatised tax collection are examined: (i) the impact on the nature of fiscal corruption; (ii) the problem of overzealous collection; and (iii) the challenge of assessing revenue potentials. While possibly meeting short‐term demands for local revenue growth and stability, the present form of private tax collection appears to transform the nature of fiscal corruption by reducing corruption at collection point and transferring the problem into the district administration. Moreover, while the charge of overzealousness permeates historical and theoretical work on privatised tax collection, the Ugandan experience casts doubt on its general validity. Instead, perverse distributional effects are the most likely cause of deteriorating state‐citizen relations in rural Uganda. Finally, the article considers the merit of the prediction of private collection as a preferred contractual choice for certain indirect taxes, suggesting that problems of asymmetric information in assessing the revenue yields of most rural markets are exaggerated. Copyright © 2006 John Wiley & Sons, Ltd.