Political Costs of Tax-Based Consolidations

By Chuling Chen, Era Dabla-Norris, Jay Rappaport, Aleksandra Zdzienicka

December 27, 2019

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Chuling Chen, Era Dabla-Norris, Jay Rappaport, and Aleksandra Zdzienicka. Political Costs of Tax-Based Consolidations, (USA: International Monetary Fund, 2019) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper studies the impact of tax-based consolidations on reelection outcomes. Using a granular database of tax-based consolidations for a panel of 10 OECD countries over the last 40 years, we find that tax reforms are politically costly but some reforms are costlier than others. Measures aimed primarily at reducing existing deficits and debt are costlier than tax consolidation policies for improving long-term growth prospects. Electoral costs are particularly high for broad-based indirect tax and corporate tax reforms. Voters tend to penalize governments less if tax consolidations are announced early in the government’s term or if the government has a strong political mandate. Favorable economic conditions increase public support for tax-based consolidations. Personal income tax reforms are electorally salient if the reforms are frontloaded, announced during recessions, and in less progressive tax systems.

Subject: Consumption taxes, Corporate income tax, Fiscal consolidation, Income and capital gains taxes, Personal income tax

Keywords: Government, Reform, Tax, Tax reform, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/298
Stock No:

WPIEA2019298
ISBN:

9781513521534
ISSN:

1018-5941

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