Taxation and Economic Management in the Western Nations

Abstract

Trends in the tax revenues of five Western nations from 1900 to 1978 are examined. As tax revenues have increased from 10 to 40 percent of gross national product (GNP), indirect taxes have proportionately declined, displaced by social insurance and direct taxes. More of the tax burden is being paid by employers; sales and value-added taxes have become more important among indirect taxes; income taxes have displaced wealth taxes among the direct tax forms. Changes in tax administration, economic impact, and the politics of taxation are examined as possible limitations on the further growth of taxation and economic management by taxation. It is argued that the marked increase in the tax/GNP ratio cannot be regarded as having a proportionate impact on the ability of governments to manage economic performance by taxes.

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References

Data on Britain, Sweden, Germany, and Italy from 1900 to 1940 are adapted from Kurt Seebohm, “Die Entwicklung der steuerstruktur im Prozess der Modernisierung: Eine vergleichend-historische Analyse Westeuropaischer Staaten” (Diplomarbeit, University of Mannheim, 1976).

Similar developments may be noted in particular delivery systems for social services. Robert Hanneman and J. Rogers Hollingsworth , in “The Problems of Centralization: Health and Education Policies in Great Britain and the United States” (Paper delivered at the American Political Science Association meetings, New York, 1979), examine the changing structure of administration in two such systems.

R. Hanneman, Inequality and Development in Britain, France, and Germany from 1850 to 1970 (Ph.D. diss., University of Wisconsin, 1979).

4. The connection between tax visibility and tax revolt is examined most closely by Harold Wilensky (see note 2). Wilensky argues that the visibility-revolt connection is decreased by centralization. I regard it plausible that centralization may deepen the crisis by mobilizing conflict at the national level in more centralized systems.

5. Although social insurance data for the pre-World War II period are not included in the tables in this article, such taxes constituted five percent or less of all tax revenues in the 1900-1910 period in most nations, and generally constituted about 10 percent of all tax governments in the interwar period.