Politics in Reforming Taxes: Evidence from Developing Countries

This paper empirically assesses the role of political variables in the implementation of tax reforms in a sample of 45 emerging market and low-income economies over the 2000-2015 period. The existing literature identifies several hypotheses that could drive reforms, but empirical studies that support these hypotheses are lacking. Using a narrative database of tax reforms and by means of binary-type models, our results suggest that a left-wing government is less inclined to implement tax reforms while both proximity to elections and political strength or cohesion are positively associated with tax reforms. The influence of the left government is stronger in low-income than in emerging market economies and revenue administration reforms are resisted the most by such governments. Proximity to elections seems to trigger reforms of personal income tax (PIT) but opposite holds for trade tax reforms. Political cohesion is a necessary ingredient to reform most tax categories and revenue administration.