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Dissertation
(Abstract)
September
15, 2003
The
fiscal contract: The state, taxes and social welfare
Anyone who
has traveled in poor areas of poor countries cannot help but notice
the palpable absence of government — the dearth of roads, hospitals,
schools and even basic sanitation in many cases. The absence of taxes
and tax collectors may be less conspicuous, but just as important, according
to the theory I develop and test. Using a simple model of taxation,
I hypothesize that the cost of enforcing tax compliance provides governments
with pecuniary incentives to supply benefits to taxpayers, thereby encouraging
an overlap between the distribution of the tax burden and the distribution
of public benefits. I test this hypothesis against rival hypotheses
using data from about 90 countries. My results show that the more a
state incorporates lower income groups into the tax system, the better
it performs in terms of a number of health care indicators, including
infant mortality and life expectancy; the more a state incorporates
upper income groups into the tax system, in contrast, the more it protects
property rights. The rub is that neither total government revenue, nor
higher taxes on the wealthy are associated with higher human development
indicators, while neither total government revenue nor higher taxes
on the poor are associated with more secure property rights. In other
words, the people who pay for the state obtain its benefits. These findings
are buttressed by a case study of Brazil, where I show that earmarking
has been a solution to abysmal state performance; in order to obtain
revenue, the Brazilian government has increasingly relinquished control
over spending.
Committee:
David A. Lake (co-chair) dlake@ucsd.edu;
Gary W. Cox (co-chair) gcox@ucsd.edu; Peter
H. Smith; Peter A. Gourevitch (IRPS); Christopher Woodruff (IRPS).
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