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Life satisfaction and austerity: Expectations and Macroeconomy

Sarah Brown (), Alexandros Kontonikas (), Alberto Montagnoli (), Mirko Moro () and Luisanna Onnis ()
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Alexandros Kontonikas: University of Essex
Alberto Montagnoli: Department of Economics, University of Sheffield
Luisanna Onnis: Huddersfield Business School, University of Huddersfield

No 2019011, Working Papers from The University of Sheffield, Department of Economics

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.

Keywords: Fiscal Austerity; Life Satisfaction; Macroeconomic Environment (search for similar items in EconPapers)
JEL-codes: P16 H2 H5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2019-05
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