On the Political Economy Determinants of Tax Reforms: Evidence from Developing Countries

This paper analyzes the role of political variables in the implementation of structural tax reforms in 45 emerging market and low-income economies during 2000-2015. The existing literature identifies several hypotheses that drive reforms, but empirical studies that support these hypotheses are lacking. Relying on a new database of structural tax reforms and on binary-type models, our results suggest that a left-wing government is less inclined to implement tax reforms while both proximity to elections and political strength or cohesion are positively associated with tax reforms. The influence of the left government is stronger in low-income than in emerging market economies and revenue administration reforms are resisted the most by such governments. Proximity to elections seems to trigger reforms of personal income tax (PIT) but opposite holds for trade tax reforms. Political cohesion is a necessary ingredient to reform most tax categories and revenue administration.

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