Taxes, accountability and public order

It’s the end of April again, which means that Canadians from coast to coast are rushing to complete their tax returns by the May 1 deadline.

Though it is popular to rail against taxes, there is reason to believe that taxes tend to be higher under governments that are more responsive to voters than under less responsive governments.

There is also an interesting tendency for countries with lower taxes to end up spending more on law and order — and not just because it’s a core service that has to be funded.

The first graph below shows a robust relationship between taxation and accountability. Countries in the lower left hand corner, such as South Korea, Greece and Japan, tend to have relatively low tax loads. However, they also have low Voice and Accountability scores*, a measure of the extent to which the public has a role to play in setting political priorities and holding legislators accountable.

In the opposite corner, there are countries like Sweden, Denmark and Belgium. These countries do have fairly high taxes. However, the governments of these countries also tend to do better in providing citizens with a voice in the public policy process, and with the tools to hold legislators to account.

Some of these differences between countries can be explained in part by population size — at similar levels of development, smaller countries tend to be less tolerant of corruption than larger ones, and their governments have fewer citizens to divide costs among.

However, an analysis of the relationship between tax loads and Voice and Accountability scores among these countries suggests that 52 percent of the difference in tax loads can be explained by differences in Voice and Accountability scores.**

This suggests that the more leeway they give citizens to influence the political process and to hold legislators accountable, the more likely governments are to have to bear higher costs as a result.

The lesson here is that governments can keep costs down, or they can be responsive to the public, but it is very difficult for them to do both.

The relationship between taxes (as a percentage of GDP) and World Bank Voice and Accountability scores. The higher a country is positioned in the chart, the higher its tax load. The further right it is positioned, the better the public is able to influence the political agenda and hold legislators to account.

The relationship between taxes (as a percentage of GDP) and World Bank Voice and Accountability scores. The higher a country is positioned in the chart, the higher its tax load. The further right it is positioned, the better the public is able to influence the political agenda and hold legislators to account.

The second graph shows that a relationship exists between overall taxation levels and the percentage of the budget that various countries devote to maintaining public order and safety.

In the upper left hand corner, one finds that Sweden, Denmark and France spend relatively small amounts on public order and safety in spite of their higher tax loads. By comparison, the U.S. and South Korea, in the lower right hand corner, devote considerably more resources to public order and safety when crafting their budgets.

One possible explanation for this difference between countries is that spending on public order and safety tends to get swamped by spending on other priorities in countries with higher tax loads. Indeed, 36 percent of the difference in government spending on public order and safety can be explained by the overall tax load.**

However, there is also strong evidence that countries that spend more on social protection measures — such as social assistance, child care and work training programs — tend to end up spending less on maintaining public order and safety.*** This lends credence to the idea that creating a healthy, educated and productive population is an effective way of reducing crime.

The relationship between taxation (as a percentage of GDP) and public order and safety measures as a percentage of government spending. The higher a country is situated in the graph, the higher its tax load. The further to the right it is located, the larger the share of the budgetary pie dedicated to public order and safety.

The relationship between taxation (as a percentage of GDP) and public order and safety measures as a percentage of government spending. The higher a country is situated in the graph, the higher its tax load. The further to the right it is located, the larger the share of the budgetary pie dedicated to public order and safety.

Sources: OECD, World Bank. The relationships discussed above are statistically significant.

* – Definition of Voice and Accountability: “The Voice and Accountabilty index is comprised of indicators that measure political rights, civil liberties, fairness and regularity of elections, and the freedom of the press.”

** – Based on a curve estimation linear regression

*** – Pearson correlation: -.615, 99% confidence (i.e., there’s a strong correlation between the two variables).

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About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

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