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Budget institutions and taxation

Lasse Aaskoven ()
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Lasse Aaskoven: University of Copenhagen

Public Choice, 2018, vol. 174, issue 3, 335-349

Abstract: Abstract While a number of different studies have explored the effects of budgetary procedures and the centralization of the budget process on government debt, deficits and spending, few of them have explored whether such fiscal institutions matter for public revenue. This article argues that centralizing the budget process raises the levels of taxation by limiting the ability of individual government officials to veto tax increases in line with common-pool-problem arguments regarding public finances. Using detailed data on budgetary procedures from 15 EU countries, the empirical analysis shows that greater centralization of the budget process increases taxation as a share of GDP and that both the type of budget centralization and level of government fractionalization matter for the size of this effect. The results suggest that further centralizing the budget process limits government debt and deficits by increasing public revenues as well as constraining public spending.

Keywords: Fiscal institutions; Budget centralization; Taxation; common-pool problem; Government fractionalization (search for similar items in EconPapers)
Date: 2018
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