Trade and redistribution: trade politics and the origins of progressive taxation

Abstract

What explains variation in tax progressivity before World War I? I argue that trade politics shaped the emergence of progressive taxation. If labor could provide a useful ally, trade policy coalitions meant compromise on redistributive demands: progressive taxes, especially where inequality was lower. In time-series cross-sectional analysis, I find that trade interest proximity between labor and elites was associated with more progressive taxation in ten European countries between 1870 and 1913 under conditions of low inequality. The coalition and compromise mechanism is evident in sub-national evidence from Britain. Where constituency interests favored free trade, Liberal–Labour electoral alliance was more likely in 1906, and the local MP was more likely to support the 1909 “People's Budget” for progressive taxation.

International Trade, the Great War, and the Origins of Taxation: Sister Republics Parting Ways

“…Our work complements Barnes (2020) who has highlighted the role of trade considerations in tax politics in the 19th century. We demonstrate that political coalitions built on trade policy preferences also shaped tax policies in the years around the Great War.…”

“…More generally, we argue that the literature on the origins of taxation needs to pay more attention to economic considerations other than the class conflict because tax policies affect the cost of all economic activities (Haffert & Mertens, 2021). Since actors' interests are not only shaped by concerns about redistribution but also by their situation in the international economy, the resulting multidimensional policy space allows for different actor coalitions (Barnes, 2020). Most notably, farmers were an influential but often overlooked group shaping the politics of taxation in this foundational period for the modern tax state (Prasad, 2012).…”

No direct taxation without new elite representation: Industrialization and the domestic politics of taxation

“…However, trade taxation increasingly fell out of favour in the 'liberal age' (Cardoso & Lains 2010), in particular with the new economic elites themselves, as it hampered international trade and economic activity (Mann 1978;Seelkopf et al 2016). Landed elites were typically more favourable to trade taxation, but mostly for its protectionist effects (Morgan & Prasad 2009;Barnes 2020). Indirect taxation remained popular with the elites, but repeatedly triggered tax revolts by the masses (Tilly 2004), as it disproportionally affected low-income citizens.…”

“…5. This case selection strategy implies that we need not be concerned about the possibly complicated coalitional dynamics influencing the choice between direct and trade taxation (Barnes 2020;Mares & Queralt 2019). 6.…”

“…An emerging literature has addressed the question of why states increasingly turned to direct forms of taxation throughout this period (e.g., Aidt & Jensen 2009;Dincecco 2011;Mares & Queralt 2015;Seelkopf et al 2016, forthcoming;Andersson 2018;Beramendi et al 2019;Barnes 2020). In terms of extractive capacity, direct forms of taxation were considered superior to other existing forms of revenue generation (Mann 1978;Morgan & Prasad 2009;Cardoso & Lains 2010).…”