Trade liberalization and the global expansion of modern taxes

Research output: Journal contributionsJournal articlesResearchpeer-review

Authors

  • Laura Seelkopf
  • Hanna Lierse
  • Carina Schmitt

For a long time, governments relied heavily on trade taxes as the main source of public finance, and for some countries, mainly less developed ones, they still account for a large share of revenue. Yet, with trade liberalization, governments have been forced to abandon these easy-to-collect taxes and to adopt modern hard-to-collect taxes, mainly internal income and consumption taxes. Surprisingly, we know little about how governments across the world have addressed this common challenge. In this paper, we analyze the rise of the most important present taxes: the personal and corporate income tax, the general sales tax and the value-added tax. Based on a self-coded dataset, we provide a historical-descriptive outline of the expansion of modern taxes since 1842 and test the effect of trade liberalization on the probability to adopt hard(er)-to-collect taxes. While trade is an important determinant for the legislation of modern taxes, we find that its influence is not universal but depends on the tax type. Only the personal income tax and the value-added tax have served as a revenue substitution to trade taxes, while the general sales tax and the corporate income tax were rather fueled by other factors such as spending pressures.

Original languageEnglish
JournalReview of International Political Economy
Volume23
Issue number2
Pages (from-to)208-231
Number of pages24
ISSN0969-2290
DOIs
Publication statusPublished - 03.03.2016
Externally publishedYes