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Democratisation and tax structure in the presence of home production: Evidence from the Kingdom of Greece

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  • Pantelis Kammas

    (Athens University of Economics and Business)

  • Vassilis Sarantides

    (Department of Economics, University of Sheffield)

Abstract

This paper examines the impact of democratisation on tax structure in an agrarian economy where goods can be produced at home for self-consumption. We first develop a model of optimal taxation with heterogeneous agents where the good produced in the market is subject to a consumption tax, whereas the homogeneous good produced at home is burdened by a direct tax (such as land tithes). Contrary to conventional theory, our model suggests that extension of the voting franchise to poorer segments of the population exerts a negative impact on the share of direct to indirect taxes. Using unique national and regional tax data for the Kingdom of Greece - a typical agrarian economy when universal male suffrage was established in 1864 - we provide consistent empirical evidence. Greek governments adjusted tax policy in order to meet the preferences of the newly enfranchised electorate that constituted mostly by peasants and farmers. This group was harmed substantially by direct taxes on land but was able to avoid indirect taxes through self-consumption. We also employ a sample of 12 European countries over the same period and provide evidence for a similar change in the tax structure when the agricultural sector dominates the economy.

Suggested Citation

  • Pantelis Kammas & Vassilis Sarantides, 2019. "Democratisation and tax structure in the presence of home production: Evidence from the Kingdom of Greece," Working Papers 2019010, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2019010
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    File URL: https://www.sheffield.ac.uk/economics/research/serps/articles/2019_010
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    More about this item

    Keywords

    democracy; tax structure; fiscal capacity;
    All these keywords.

    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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