P14: Taxation, economic development, and norms

PIs: Wagener (leading), Dreher, Strulik

Globalization and development pose challenges for the design of public institutions. In an economically integrated world, governments are strategically interlinked. Game-theoretic models of such strategic interaction have so far mainly been largely (albeit implicitly) confined to fiscal competition among developed countries. However, with increased mobility of capital and labor and a stronger involvement in international trade actual and potential tax bases become more elastic and more closely connected to other countries? (tax) policies. In this project we intend to analyze fiscal competition for the case of developing countries.

Developing economies also suffer from limited set of policy instruments at their disposal, low levels of fiscal resource mobilization (relative to spending needs), an unbalanced and risk-prone portfolio of taxable activities, a one-sided dependence on few, big tax-payers in combination with a large and basically non-taxable informal sector, a strong necessity to attract FDI, poor economic governance, insufficient administrative capabilities, higher levels of corruption, weaker tax enforcement, weaker tax compliance, and, generally, also different sets of values and norms.

With respect to the political economy of the developing countries themselves, the disciplinary potential of economic integration on autocratic and bureaucratic governments is still an under-researched issue. From the perspective of values and norms, attitudes toward corruption, compliance, social trust and government in general strongly matter for revenue mobilization. All this poses specific and intricate design questions for taxation in emerging countries.

Potential dissertation topics:

  • Tax design in developing countries in face of globalization: Options and assessment
  • The political economy of tax reforms in open developing economies
  • Tax compliance and enforcement in developing economies
  • Attitudes towards taxes and government in developing economies ? testing the ?slippery slope? hypothesis