Democracy, Economic Freedom and Taxation in the European Union

  • Petru-Ovidiu MURA <p><em>West University of Timisoara</em></p><p><em>Faculty of Economics and Business Administration<br /></em></p>
Keywords: democracy, economic freedom, taxation, VAR analysis, European Union

Abstract

The purpose of this paper is to study empirically how democracy, taxation and economic freedom interact within the European Union (EU-27), european old member states (EU-15) and european new member states (EU-NMS), using VAR methodology, with panel data for 24 countries and yearly observations for the period 1995-2008. The main findings show for EU-27 that democracy amplifies the level of taxation and it discourages economic freedom, while economic freedom has an almost unsignificant, but positive effect on the level of taxation, and a small, positive effect on democracy. As for EU 15, taxation and economic freedom seem to discourage each other; finally, in the case of EU-NMS, the results are similar to EU-27. In respect to policy implication, governments should protect and support private property and initiative, the only ones able to provide functionality for the market’s "invisible hand".

Author Biography

Petru-Ovidiu MURA, <p><em>West University of Timisoara</em></p><p><em>Faculty of Economics and Business Administration<br /></em></p>
Finance Departmen, Assistant

References

Acemoglu, D., & Robinson, J. A. (2006). Economic Origins of Dictatorship and Democracy. New York: Cambridge University Press.

Aixalá, J., & Fabro, G. (2009). Economic freedom, civil liberties, political rights and growth: a causality analysis. Span Econ Rev, Vol. 11, 165-178.

Andreski, S. (1968). Military organization and society. Stanford: Stanford University Press.

Asteriou, D., & Hall, S. G. (2011). Applied Econometrics 2nd Edition. Palgrave Macmillan.

Bank of England. (1999). Economic models at the Bank of England. Retrieved from http://www.bankofengland.co.uk/publications/Documents/other/beqm/1999/five.pdf

Barro, R. J. (1996). Democracy and growth. J Econ Growth, Vol. 1, No. 1, 1-27.

Bauer, P. T. (1997). The grail of equity. New Brunswick, New Jersey: Transaction.

Boix, C. (2003). Democracy and Redistribution. Cambridge: Cambridge University Press.

De Haan, J., & Sturm, J. E. (2003). Does more democracy lead to greater economic freedom? New evidence for developing countries. European Journal of Political Economy, Vol. 19, 547-563.

Egger, P.,  & Winner, H. (2004). Economic freedom and taxation: Is there a Trade-off in the locational competition between countries? Public Choice, Vol. 118, 271-288.

Enache, C. (2012). The efficiency of expenditure-related redistributive policies in the European countries. Timişoara Journal of Economics, Vol 5, No 2(18), 380-394. Retrieved from http://www.tje.uvt.ro/index.php/tje/article/view/166

Farr, W., Lord, K. R. A.,Wolfenbarger, J. L. (1998). Economic freedom, political freedom, and economic well-being: a causality analysis. Cato J, Vol. 18, No. 2, 247-262.

Gujarati, Damodar (2002). Basic Econometrics (4th Edition). West Point Military Academy, USA.

Gwartney, J. D., Lawson, R., & Holcombe, R. G. (1999). Economic freedom and the environment for economic growth. Journal of Institutional and Theoretical Economics, Vol. 155, 643-663.

Harvey, A. (1990). The econometric analysis of time series (2nd Edition). Cambridge: The MIT Press.

Hirschman, A. (1994). The on-and-off connection between political and economic progress. Am Econ Rev, Vol. 84, No.2, 343-348.

Huntington, S. P. (1968). Political order in changing societies. New Haven: Yale University Press.

Huntington, S. P., & Nelson, J. M. (1976). No easy choice: political participation in developing countries. Cambridge, Mass.: Harvard University Press.

Kenny, L. W., & Winer, S. L. (2006). Tax Systems in the World: An Empirical Investigation into the Importance of Tax Bases, Administration Costs, Scale and Political Regime. International Tax and Public Finance, Vol. 13, No. 2, 181-215.

Lee, D. R. (1994). Private-Enterprise Communism: The shortest path to Vienamese Democracy. Contemporary Issues 63. St. Louis: Washington University Center for the Study of American Business.

Lipset, S. M. (1959). Some Social Requisites of Democracy: Economic Development and Political Legitimacy. American Political Science Review, Vol. 53, 69-105.

Lundstrom, S. (2005). The effect of democracy on different categories of economic freedom. European Journal of Political Economy, Vol. 21, 967–980.

Mathur, A., & Singh, K. (2007). Foreign direct investment, corruption and democracy. American Enterprise Institute for Public Policy Research, Working Paper 135.

Mulligan, C. B., Gil, R., & Sala-i-Martin, X. (2004). Do Democracies have Different Public Policies than Non Democracies? Journal of Economic Perspectives, Vol. 18, No. 1, 51-74.

Mutaşcu, M. (2011). Taxation and democracy. Journal of Economic Policy Reform Vol. 14, No. 4, 343-348.

Olson, M. (1982). The rise and decline of nations. New Haven: Yale University Press.

Profeta, P., Puglisi, R., & Scabrosetti, S. (2009). Does democracy affect taxation? Evidence from developing countries. Società Italiana di Economia Pubblica - XXI Conferenza, Public Choice e Political Economy. I fondamenti positivi della teoria di finanza pubblica, Pavia, 24-25 settembre.

Przeworski, A., Limongi, F. (1993). Political regimes and economic growth.  Journal of Economic Perspectives, Vol. 7, 51-69.

Sirowy, L. & Inkeles, A. (1990). The effects of democracy on economic growth and inequality: a review. Studies in Comparative International Development, Vol. 25, 126-157.

Stiglitz, J. E. (2002). Employment, social justice and societal well-being. International Labor Review, Vol. 141, No.1–2, 9-29.

Stroup, M. D. (2007). Economic freedom, democracy, and the quality of life. World Development, Vol. 35, No. 1, 52-66.

Wu, W., Davis, O. A. (1999). The two freedoms, economic growth and development: an empirical study. Public Choice, Vol. 100, No. 1, 39-64.

Published
2013-08-16
How to Cite
MURA, P.-O. (2013). Democracy, Economic Freedom and Taxation in the European Union. Timisoara Journal of Economics and Business, 6(19), 5-23. Retrieved from https://www.tjeb.ro/index.php/tjeb/article/view/TJEB19_Aug2013_05to23
Section
Articles