Income Taxes and Political Accountability

Abstract

The idea that paying taxes makes politicians more accountable to citizens has long drawn the attention of scholars. This article contributes to the understanding of this relationship from a novel perspective: that it is elections rather than negotiations between politicians and elites—as most of the previous literature has assumed—that serve as the primary mechanism by which citizens discipline politicians. I build a voting agency model that considers two effects of income taxes on voters’ decisions: how changes in voters’ disposable income affect their political demands and how increments in tax revenues affect voters’ beliefs about the ability of institutions to affect incumbents’ decisions. I find that increments in taxes always strengthen voters’ political demands. Nevertheless, it would not necessarily prove useful for disciplining incumbents—in terms of a higher expected provision of public goods and lower captured rents. Gains in political accountability, in turn, positively affect the equilibrium income tax rate.