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Monday, January 24, 2022

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Freer people create higher taxes


As a country becomes more enfranchised, the tax rate increases. | Cameron Barrett/The Cougar

Democracy and taxes remain fairly dry topics as a whole, but as someone interested in economics, these concepts are at the center of the field.

However, in this particular case, I wanted to test whether or not more democratic societies tend to have higher rates of taxation. This is compiled data where the Democracy level of a country is correlated with the top-level income tax rate of the country.

As one might tell, this correlation is fairly strong at around .49 (1 is the strongest, zero is the weakest). Essentially, the findings of the regression show that as a country becomes more enfranchised, the tax rate increases.

This is explained by a number of factors.

One, the more people involved in the political process from the bottom-up, the more generous social services people will receive, meaning the tax rate must compensate to sustain these programs.

Two, the more politically apathetic the people, the more leeway the government has to implement corrupt systems like crony capitalism or neo-socialism. Plainly, a more watchful people will lead to a more generous government, leading to a higher tax, generally.

Of course, like with all studies, there are limitations. One, the population of countries is not complete because (1) not all countries have in-depth, easily accessible information about their tax systems (North Korea, Cuba, etc.), and (2) the democracy index, while generally correct by personal judgment, is fairly arbitrary, and it always will be.

However, this study provides an interesting insight into the democratic process.

Perhaps the old statement “freedom isn’t free” rings true in more ways than one. Perhaps the social stability gained with things like a well-trained military, a large police-force, fire-fighting services, welfare-system, etc. have a reasonable cost, leading democracies to tax more.

There is a lot of room for further study in this field, and I hope to see some promising literature regarding this subject in the future.

Columnist Cameron Barrett is an economics senior and can be reached at [email protected]

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