Introduction to the Handbook on the Politics of Taxation

There is no rule without revenue. Since rule is ultimately based on coercion, any ruler needs to pay agents, who enforce the rules, and their matériel. Otherwise, disobedience and overthrow are likely to follow (Levi, 1988). Throughout history, rulers have relied on three main ways to obtain the required revenue. They have conquered or raided the owners and producers of resources, earned rents from the export of natural resources or have indebted themselves internally or abroad to finance their operations. All these have clear downsides: relying on conquest forces rulers to constantly expand, which is likely to result in imperial overstretch and defeat (e.g. Barkey, 1994; Neumann & Wigen, 2018); natural resources run out or drop in value depending on world market prices (e.g. Beblawi, 1987; Ross, 2015); and credit is only given so long as the promise of repayment is feasible – ultimately requiring another revenue stream to be credible (e.g. Centeno, 2002; Stasavage, 2011). Hence, most countries have evolved into Steuerstaaten (tax states) over time (Schumpeter, 1918). A notable exception remains North Korea, which abolished its taxes in 1974 (Genschel & Seelkopf, 2016). All other former communist countries have since then (re)introduced taxes to steer their capitalist economies.1 Nowadays, basically all states worldwide have at least some modern taxes in their revenue arsenal (Seelkopf et al., 2019) – albeit with varying histories, revenue sizes and mixes as this book will show. A tax is an “obligation to contribute money or goods to the state in exchange for nothing in particular” (Martin et al., 2009, p. 3). Direct taxes are imposed on income, wealth, or property, whereas indirect taxes are imposed on transactions and consumption. Moving into taxation requires rulers to engage in state building. They need administrations staffed with bureaucrats, who assess income and wealth, monitor transactions, and collect tax payments. To make taxation effective, rulers also need to prevent their subjects from hiding income, wealth, or transactions from bureaucrats. They can do this the authoritarian way and invest in enforcement and deterrence, or they can go the constitutional route and foster quasi-voluntary compliance among taxpayers (Karaman & Pamuk, 2013; Seelkopf, 2018; Levi, 1988). To this end, rulers need to build institutions that legitimate their rule by granting taxpayers the right of representation and some control over government spending. As a result, the state becomes more likely to provide public goods requested by its constituents (e.g. Dincecco et al., 2011; Levi, 1988). Given its intimate relationship with state building and representation, the move to taxation makes revenue collection highly political. Whereas resource rents and foreign loans have often prevented rulers from engaging with their subjects (e.g. Centeno, 2002; Queralt, 2019), or undermined already existing representative institutions (Ross, 2015), taxation has regularly entailed requests for political participation and control from domestic taxpayers. To be sure,