Download DO VISIBLE TAXES CAUSE PROTEST

DO VISIBLE TAXES CAUSE PROTEST?
TAX POLICY AND TAX PROTEST IN RICH DEMOCRACIES
Paper prepared for the meetings of RC-19
Isaac Martin and Nadav Gabay
September 7, 2007
Department of Sociology
University of California - San Diego
La Jolla, CA 92093-0533
[email protected]
[email protected]
“The art of taxation,” according to an oft-repeated maxim, “consists of plucking the
goose so as to obtain the most feathers with the least squawking”—i.e., maximizing revenue
while minimizing protest.1 But the science of taxation offers little help in minimizing protest.
Scholars of public finance have been more concerned with minimizing efficiency costs. To that
end they have investigated how individuals respond to taxes by altering their investment
behavior, their consumption patterns, or their labor market participation (Auerbach and Hines
2002; Slemrod and Yitzhaki 2002), but they have rarely asked how individuals respond to taxes
by demanding changes in tax policy. Social movement scholars, for their part, have explored
how protest responds to mobilizing structures (McCarthy and Zald 1977), political opportunities
(McAdam 1996; Meyer 2004), and the framing efforts of social movement organizations
(Benford and Snow 2000), but have devoted little explicit theoretical attention to the question of
which public policies provoke protest and why (Meyer 2005). Social scientists know a great deal
about how to tax without increasing unemployment or provoking capital flight, but
comparatively little about how to tax without provoking public outcry.
Why do some policies provoke more protest than others? In the absence of systematic
research, policy makers and economists alike have leaned on the folk theory that some policies
are more protest-prone than others because their burdens are inherently more noticeable or
“visible.” We call this folk theory the visibility hypothesis. It was a conventional wisdom among
English politicians in the early eighteenth century that some taxes were more visible than others
(Barker 1966), and it became a staple of classical political economy (McCulloch 1975 [1845];
Mill 2004 [1871]; Puviani 1973 [1903]) and political sociology (Michels 1968 [1915]; Pareto
1963 [1916]). Some political scientists and sociologists have recently resurrected the visibility
hypothesis to help explain the political durability of large welfare states. They survive, the
argument goes, because they rely on taxes that are “invisible” and that therefore generate little
backlash (Kato 2003; Morgan and Campbell 2005; Prasad 2005; Prasad 2006; Steinmo 1993;
Wilensky 2002).
In this paper we subject this folk wisdom to theoretical interrogation and empirical test.
Previous attempts to test the visibility hypothesis have relied on vaguely specified mechanisms
and uninformative research designs. We draw on social movement theory and recent research in
behavioral public finance to distinguish among the cognitive properties of policies that may
provoke protest. We apply this theory to tax policy, employing a novel design that permits
systematic comparisons over time and across taxes. And we draw on a new comparative database
that provides explicit, time-varying measures of visibility and protest for six categories of
taxation in sixteen rich, democratic countries over a 35-year period.
The results include some surprises. Sales taxes and value-added taxes (VAT)—widely
believed by welfare state scholars to be the least visible taxes (Wilensky 2002; Kato 2003;
Prasad 2005, 2006)—are in fact the most often protested, in part because they are among the
most burdensome. Taxes on payroll, by contrast, are the least often protested, and other taxes are
intermediate. The pattern can be explained by two factors: the magnitude of the tax burden, and
the ease with which that burden can be traced to the actions of policy makers. Another dimension
of visibility—the ease of calculating the burden—appears to have no independent impact on
protest.
“L'art de l'imposition consiste à plumer l'oie pour obtenir le plus possible de plumes avant d'obtenir le moins
possible de cris.” Attributed to Jean-Baptiste Colbert, finance minister to Louis XIV.
http://www.dicocitations.com/auteur/1073/Colbert_Jean_Baptiste.php, retrieved August 3, 2007.
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These findings have important implications for social movement theory and welfare state
research. Social movement scholars have begun to recognize that the threat of adverse conditions
can motivate protest. We show that the design of public policy may affect protest not only not
only by creating threats, but also by influencing which adverse conditions are framed as threats.
Diagnostic framing of policy threats depends not only on the competing rhetorical strategies of
protesters and their opponents, but also on the flow of information that is structured by public
policy.
For welfare state research, our finding suggests that a common explanation for the
resilience of big welfare states is wrong. Scholars have observed that large welfare states rely
heavily on consumption taxes, most especially VAT (Ganghof 2006; Lindert 2004; Prasad 2005;
Prasad 2006). Two explanations have been put forward to explain this correlation. One is that
that VAT falls on mostly on labor, and thereby allows states to build expensive welfare
commitments without driving away mobile capital. The second is that VAT is invisible and
therefore allows states to build expensive welfare states without provoking taxpayer protest. Our
findings show that the second of these explanations rests on a mistaken premise.
Finally and most generally, we think this project demonstrates the potential contribution
of empirical sociology to the science of public finance. If the art of taxation consists of
minimizing protest, then scholars and practitioners of taxation could benefit from engagement
with social movement scholars. The depth of collective ignorance about the causes of tax protest
is illustrated by the short-lived British poll tax: this flat-rate, per-capita (or “lump-sum”) tax was
consistent with the best wisdom of mainstream public finance scholarship on how to minimize
efficiency costs (see, e.g., Auerbach and Hines 2002; Cordes 2005), but its introduction to
England and Wales in 1990 led to weeks of civil disobedience, demonstrations, and rioting,
culminating in a day-long rebellion that paralyzed London, brought down a prime minister, and
reportedly harmed Britain’s image abroad (Burns 1992; Butler, Adonis, and Travers 1994). The
poll tax riots no doubt had considerable efficiency costs as well. Public finance scholarship that
wishes to be realistic about the behavioral consequences of public policy might benefit from
incorporating sociological theory.
VISIBILITY, TRACEABILITY, AND POLICY-ORIENTED PROTEST
Tax protest is a special case of a general phenomenon that we may call policy-oriented
protest. Social movement challengers often demand changes in public policy. But what is it
about particular public policies that provokes protest? Our theory of policy-oriented protest
builds on the standard political process model of social movements (McAdam 1982; McAdam,
Tarrow, and Tilly 2001; Tilly 1978). According to the classic version of this model, potential
protesters will protest if and only if they expect the benefits of protest to exceed the costs.
Expanding political opportunities create incentives for protest, on this assumption, by increasing
the expected likelihood that protest will pay off (Amenta and Zylan 1991; Jenkins, Jacobs, and
Agnone 2003; McAdam 1982; McAdam 1996; Tarrow 1996). Adverse conditions (or “threats”)
can also create incentives for protest by increasing the costs of inaction (Almeida 2003;
Einwohner 2003; Goldstone and Tilly 2001; Tilly 1978; Van Dyke and Soule 2002). A tax
increase is one example of a “policy threat” (Campbell 2005a) that may make protest more
attractive by increasing the shared costs of doing nothing.
Public policy may also affect protest by shaping the perception of threats, independently
of their magnitude. Social movement scholars have argued persuasively that the perception and
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attribution of opportunities and threats is mediated by “master frames” and other cultural
resources available to potential protesters (Benford 1997; Benford and Snow 2000; Gamson and
Meyer 1996; Goodwin and Jasper 1999; Snow, Rochford, Worden, and Benford 1986). Much
early work on framing had a voluntaristic cast, and seemed to suggest that activists need only
come up with the right rhetorical strategy in order to mobilize a mass movement (for sympathetic
criticism along these lines, see Benford 1997; Polletta 1997). Recent scholarship has moved
away from this voluntarism by focusing on the discursive structure of opportunities. Law and
public policy provide prime examples of discursive resources that constrain the rhetorical options
available to protesters (Ferree 2003; Pedriana 2006). We share this renewed emphasis on policy
as a cultural resource for protesters, but our own approach emphasizes the performative
dimension of policy rather than its semantic content. Policy does things, and the things it does
may make certain ways of framing grievances possible or desirable.
Visibility in the dominant literaure on taxation is a metaphor rather than an analytic
concept. In order to give it analytic content, we distinguish between two senses in which a policy
might be said to be visible: its salience and its traceability. Following Chetty et al. (2007), we say
that a policy is salient if it provides perceptual cues that make it easy for people to compute its
costs at the time that they are incurred. Salience does not refer only to literal visual evidence,
although visual cues are among the things that may make it easier to calculate costs.
Salience matters because potential protesters must perceive the costs of the policy in
order to perceive that policy as a threat. A taxpayer who underestimates the magnitude of her tax
burden, e.g., may perceive little benefit in demonstrating for a lower tax rate. Perceiving the cost
of a policy is a nontrivial barrier to protest because it typically requires substantial cognitive
effort. Research in behavioral economics demonstrates that people take cognitive shortcuts in
order to reduce the effort of economic calculation, and these heuristics may induce a variety of
systematic biases (for reviews see Camerer 1995; Fang and Silverman 2006; Shafir and LeBoeuf
2002). A substantial body of scholarship in public choice and behavioral public finance suggests
that public officials may design policies to exploit these biases and obscure the costs of
unpopular public policy (Dollery and Worthington 1996; see, e.g., Frey and Stutzer 2006;
Gemmell, Morrissey, and Pinar 2002; Loewenstein, Small, and Strnad 2006; McCaffery and
Baron 2005; McCaffery and Baron 2006; McCaffery 1994; McCaffery and Baron 2004; Oates
1988; Wagner 1976; Winter and Mouritzen 2001). The classic source for this claim is Puviani’s
Theory of Fiscal Illusions (1970 [1903]), which argued that rulers prevent armed tax rebellions
by deliberately inducing “optimistic illusions” that conceal the full cost of taxation.
Following Pierson (1993), we say that a policy is traceable if it provides information that
facilitates causal attribution of its costs to the actions of policy makers. Causal attribution matters
for collective action because it affects what people expect they can achieve by protest. Potential
protesters will demand that policy makers do something about their grievances only if they think
that policy makers can do something—that is, if they think that their grievances depend causally
on the choices of policy makers (Benford and Snow 2000; Javeline 2003; Snow, Rochford,
Worden, and Benford 1986). In the case of tax policy, traceability is partly a function of how the
tax is collected. A tax that is collected directly by agents of the state is likely to be more
traceable than a tax that is collected indirectly through intermediaries. Conversely, a tax policy
may be untraceable if tax collection is bundled together with other economic transactions.2
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The distinction between visibility and traceability is potentially important because perception and causal attribution
are independent cognitive tasks. To illustrate the difference, imagine a new excise tax on fuel that is passed on to
automobile drivers in the price of gasoline. A driver might attribute the increase in the cost of fuel to tax policy
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Salience and traceability may vary independently of one another. They may even vary
inversely. Consider the case of a sales or excise tax that is collected from merchants and passed
along to consumers in the prices of goods. Recent field experiments demonstrate that shoppers
respond to the cost of a retail sales tax most readily when stores include the tax in the posted
prices of goods (Chetty et al. 2007). Price inclusion increases the salience of the tax and thereby
increases the tax elasticity of demand. But tax-inclusive prices, although they reveal the cost of a
tax, may obscure the fact that this cost is due to public policy. For this reason, scholars from
John Stuart Mill onward have more typically assumed that price inclusion actually reduces
visibility and protects consumption taxes from protest (Kato 2003; Mack, Breaux, Frenzel,
Garrett, Lazear, Muris, Poterba, Rossotti, and Sonders 2005; Mill 2004 [1871]). In the case of
price inclusion, salience and traceability suggest opposite hypotheses:
H1. Price inclusion increases salience: consumption taxes that are included in posted prices are
more likely to cause protest than consumption taxes that are not.
H2. Price inclusion decreases traceability: consumption taxes that are not included in posted
prices are more likely to cause protest than consumption taxes that are included.
Another example comes from the taxation of income. Some tax authorities, like the U. S.
Internal Revenue Service, require taxpayers to compute their own income tax liability, a practice
called self-assessment. Other tax authorities do the computation themselves and notify taxpayers
of their liability, a practice called administrative assessment. Administrative assessment eases the
cognitive burden of computing the tax liability and thereby increases the visibility of the tax.
Edlund (1992), e.g., presents evidence that Swedes are better informed about the distribution of
personal income tax than Americans are, and suggests that the prevalence of fiscal illusions in
the U.S. may be attributable to the greater cognitive difficulty of American income tax
assessment. But if administrative assessment increases visibility it may decrease traceability.
Self-assessment ritually that marks the distinction between pre-tax and after-tax income. This
ritual may in fact make people aware that their incomes causally depend on tax policy. For this
reason, some conservative commentators have argued that the ritual of self-assessment is
necessary to fully informed, democratic self-government (Christian and Robbins 2005)
H3. Administrative assessment increases salience: Taxes that are administratively assessed are
more likely to cause protest than taxes that are self-assessed.
H4. Self-assessment increases traceability: Taxes that are self-assessed are more likely to cause
protest than taxes that are administratively assessed.
Finally, consider the policy of withholding tax at the source. A tax on earnings is
withheld at source if it is remitted to the state by the employer, without ever passing through the
hands of the legally liable taxpayer. Withholding, much like inclusion of sales tax in posted
prices, eases the cognitive burden of economic decision-making. Taxpayers whose tax is
withheld from their earnings may find it easier to calculate the after-tax results of their economic
choices. Withholding also presents taxpayers with frequent visual evidence of the tax liability:
wage earners, e.g., have visual evidence of their taxes on every paycheck stub (see e.g. Prasad
2006). Some economists have argued therefore that such taxes “deducted explicitly from
earnings” are relatively visible (Becker and Mulligan 2003: 304; see also Mack et al. 2005: 204).
while underestimating its magnitude. Conversely, another driver might perceive the increase in the cost of fuel
correctly but misattribute the increase to inevitable natural scarcity. The second driver might be more likely than the
first to change her consumption behavior in response to the tax—e.g. by driving less. But neither driver is likely to
protest the fuel tax. Collective action requires both perception of the threat and its causal attribution to policy
makers.
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If salience is what makes some tax policies protest-prone, then we might expect withholding to
increase the likelihood of protest.
But many tax experts have assumed that withholding decreases the likelihood of tax
protest by obscuring the causal relationship between tax and income (Finkelstein 2007;
Loewenstein, Small, and Strnad 2006; Twight 1995; Zelenak 2003). Zelenak (2003) puts the
point as follows: “For an employee whose income is subject to withholding, pretax income is just
a number on a pay stub; it lacks the visceral reality of take-home pay” (2003: 2271). The causal
connection between the tax liability and the actions of policy makers might be more viscerally
felt—i.e., more traceable—if the taxpayer had to participate directly in the interaction ritual of
handing the tax over to an agent of the government.
H5. Withholding increases salience: Taxes on earnings that are withheld at source are more
likely to cause protest than taxes that wage earners must remit directly to the state.
H6. Withholding decreases traceability: Taxes on earnings that are collected by withholding at
the source are less likely to cause protest than taxes that wage earners must remit directly to the
state.
MEASUREMENT PROBLEMS IN PRIOR RESEARCH
Scholars have long assumed that visibility causes protest. Sir Robert Walpole, the first
prime minister of Britain, is supposed to have remarked in the early eighteenth century that “the
payers of direct taxes... were pigs that squealed if they were touched; [while] the payers of
indirect taxes were only sheep that let themselves be sheared in silence” (Barker 1966: 57), and
John Stuart Mill theorized that the so-called indirect taxes (chiefly customs and excises) were
immune to protest because they were collected by intermediaries and included in prices (Mill
2004 [1871]: 223). But prior attempts to test the visibility hypothesis have been hampered by two
serious methodological shortcomings.
The first is the problem of ecological inference. Most contemporary proponents of tax
salience hypothesis in sociology and political science today cite the research of Wilensky
(Wilensky 1976; Wilensky 2002), who compared national tax systems in the aggregate, rather
than individual taxes. Wilensky and his research assistants assigned each of nineteen
democracies a score to represent the aggregate level of “tax-welfare backlash” over the period
1965 to 1975, and demonstrated that countries that relied most heavily on taxes that he classified
as “direct taxes” also experienced the most backlash (see also Hibbs and Madsen 1981). It is but
a short leap from this finding to the conclusion that direct taxes cause protest, but that leap
entails an invalid ecological inference. Countries that rely heavily on direct taxes might exhibit
the most protest, but protesters within these countries might still be protesting primarily against
indirect taxes.
The case of Danish tax protest illustrates the problem. This country is well known to
students of comparative political economy for its uniquely heavy reliance on income taxes
(Ganghof 2007), and it is also thought by many scholars to be the country that “has experienced
the most extensive tax revolts (i.e., resistance to high-tax burden) in Western Europe” (Kato
2003: 30; see also Esping-Andersen 1985; Østergård 1992). Many scholars have offered the
Danish case as evidence that income taxes cause protest, and Wilensky’s studies of tax-welfare
backlash in the period 1965 to 1975 devote considerable attention to Danish anti-income-tax
protest (see Wilensky 2002: 377). But the historical record suggests that at least as many Danes
protested against consumption taxes in that decade. In 1965, e.g., a group of Copenhagen
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shopkeepers founded a “Sales Tax Collectors’ Association” to lobby for lower taxes, and two
years later they founded a protest party called the Citizens’ Party for the same purpose.3 In
February 1973, a new grassroots organization called the People’s Consumer Committee collected
15,000 signatures on a petition to demand a permanent ban on taxation of grocery sales
(Avisårbogen 1973). And a proposed increase in the VAT provoked the largest single tax protest
in Denmark in the postwar era—a 200,000 person strike in May 1974 (New York Times 1974).
The lesson of the Danish case is that cross-national comparisons alone cannot tell us which taxes
are most likely to cause protest. For that purpose, we need systematic comparisons across taxes
within a given country.
The second problem with the existing literature is its lack of explicit, empirical
indicators of salience and traceability. The theoretical literature implies that the visibility of a tax
depends on the details of how a tax is assessed and collected. John Stuart Mill’s hypothesis that
indirect taxes were immune to protest, e.g., depended on the assumption that such taxes were
included in prices. But most empirical studies to date have classified taxes according to the tax
base (e.g. whether they are levied on income or consumption) rather than the mode of collection
(e.g. whether they are included in prices, or whether they are withheld at source). The result is
that the empirical studies do not shed any light on the question of whether it is really visibility, as
opposed to some other characteristic of the tax, that matters for political behavior. This problem
pervades even studies that avoid the ecological fallacy. Most notably, there are a handful of
within-country studies that compare the political effects of income taxes and consumption taxes.
These studies generally suggest that consumption taxes, not income taxes, are the most
cognitively salient taxes (Dornstein 1987; Gemmell, Morrissey, and Pinar 2003), the most likely
to provoke anti-government attitudes (Gemmell, Morrissey, and Pinar 2003), and the most likely
to provoke anti-incumbent voting (Hansen 1983; Landon and Ryan 1997; Stults and Winters
2005). But these studies shed little light on why consumption taxes provoke a greater political
response. Simply comparing an income tax to a consumption tax does not tell us what it is about
the latter that is more conducive to backlash.
These considerations suggest that a test of the visibililty hypothesis should (a) compare
taxes within a country and (b) measure directly those features of tax policy that are hypothesized
to affect the traceability and salience of the policy.
METHODS: THE COMPARATIVE TAX PROTEST DATABASE
We apply these lessons to our analysis of the Comparative Tax Protest Database, a new
time-series cross-section data set of tax protest events in sixteen rich democratic countries4 over
the period from 1966 to 2000. The database includes a series of codes describing every episode
of collective action directed at least partly against taxation in these countries that we could
discover in a full-text search of two news sources of record. We defined tax protest for the
purposes of this data set as nongovernmental collective action in protest against existing or
proposed taxes. Appendix A describes in detail how we operationalized this definition.
"Omsopkræverforbundet i Danmark," n.d., Box 545; "Borgerpartiet" flyer, n.d., Box 545; "BORGERPARTIET:
partiet for økonomisk frihed," n.d., Box 545; and "Se godt efter Borgerpartiets løsgængere," n.d., Box 545,
Fremskridtspartiets Arbejdsarkiv, Privatarkiv nr. 11008, Rigsarkiv, Copenhagen, Denmark.
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Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, The Netherlands, New Zealand,
Norway, Sweden, Switzerland, the United Kingdom of Great Britain and Northern Ireland, the United States of
America.
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This database represents a substantial advance over the impressionistic generalizations
about patterns of protest that appear in the recent comparative welfare states literature (e.g. Kato
2003; Prasad 2005). Newspaper data represent the best available source of systematic data on tax
protest, as with many other forms of protest (Earl, Martin, McCarthy, and Soule 2004).
Nevertheless, newspaper coverage of protest events is subject to well-known selection biases
(Koopmans and Rucht 2002; McAdam and Su 2002; Oliver and Maney 2000; Oliver and Myers
1999; Ortiz, Myers, Walls, and Diaz 2005). We designed our study to minimize these biases to
the extent possible. First, we relied on multiple sources. Our primary source was the New York
Times, which a recent critical review of protest event research describes as “the best single
newspaper source for political event data” (Ortiz et al. 2005: 402). We supplemented this source
with Keesing’s Record of World Events, a standard international news source for constructing
quantitative time series of political events (see, e.g., Belkin and Schofer 2003; Gasiorowski
1995; Gurr 1993). Second, in searching the Times we used the combination of “generic event
descriptor” and “event-specific” search strategies recommended by Maney and Oliver to
maximize validity (Maney and Oliver 2001). Finally, we tested the sensitivity of our results to
various measurement decisions and to the inclusion of explicit controls for media selection bias.
We report the results of these sensitivity tests below.
The Comparative Tax Protest Database makes two novel contributions. First, it
incorporates information about variation in tax protest over time (cf. Wilensky 2002). Timevarying data are crucial to assess the causal hypothesis that reliance on particular taxes causes
protest and not vice versa. Second, the database includes information about which particular
taxes were the objects of protest. It thus permits a direct test of the hypothesis that some taxes are
more vulnerable to protest than others.
We coded at least one demand, and sometimes multiple demands, for each protest event
in the database. We classified taxes according to the four-digit hierarchical classification scheme
of the Organization for Economic Cooperation and Development (OECD), which is the standard
for cross-national comparison of tax revenues (Organisation for Economic Co-Operation and
Development 2003). The level of precision with which we could identify the tax or taxes at issue
varied considerably across protest events. For the purposes of the statistical analysis presented
here, we aggregated all codes to the most general level, which allowed us to distinguish six
categories: income taxes (1000), social security contributions (2000), other payroll taxes (3000),
taxes on property (4000), taxes on goods and services (5000), and all other taxes (6000).
Although we would prefer to draw finer distinctions, the six-category classification is more than
adequate to provide a direct test of the visibility hypothesis, and provides much finer resolution
than any previously available comparative data.
For the purposes of the present analysis, we treat the presence of a protest demand as a
dichotomous variable: was there any reported protest against a particular tax in a particular
country and year, or not? We call this dependent variable a “demand” in order distinguish it from
a protest event. The conceptual distinction is important for two reasons. First, protesters might
make multiple demands in the course of a single protest. For example, 10,000 French
shopkeepers marched through Paris in 1983 to protest an austerity plan that would raise income
taxes, social security contributions, and government fees; we coded this protest as three demands
because it concerned three different categories of tax policy. Second, multiple protest events in
the same country and year might express the same demand. The most dramatic example in our
database is the Mouvement de La Tour-du-Pin, a French shopkeepers’ movement for lower social
security taxes that involved at least seven protest events in 1969 alone, including demonstrations,
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marches, and violent clashes with police. For the purposes of the present analysis, these events
are treated as a single demand (protest against social security taxes in France in 1969). Treating
the presence of a protest demand as a dichotomous variable provides sufficient resolution to test
the visibility hypothesis while avoiding the risk of spurious precision associated with attempts to
measure participation from newspaper reports. It is safe to assume, however, that protests
reported in the Times met a high threshhold of participation.5
We test the relationship between tax institutions and tax protest with a series of logistic
regression models estimated over a subset of the data that includes six categories of taxation in
each of 16 countries over a period of 35 years (1966 to 2000) for which data on covariates are
readily available. Like other applications of logistic regression to events data, these models may
be understood as discrete-time event history models (Beck forthcoming 2007; Petersen 1995).
Because of the multilevel data structure—spells nested within taxes nested within countries—all
of our models include random country-level intercepts, as well as both fixed and time-varying
covariates measured at the levels of the country-tax and the country-tax-year. Our full models
have the form:
log (Pijt/[1-Pijt]) = α + βijtXijt + γijWij + δitVit + εi
where P is the probability of a protest demand; i indexes country, j indexes tax, and t indexes
year; X is a vector of country-tax-year specific variables; W is a vector of temporally invariant
country-tax specific variables, including many of the institutional characteristics of interest; V is
a vector of country-year specific variables; and ε is a random, country-level intercept.6 Some of
our models also include a vector of year-specific dummy variables Ut on the right-hand side.
Independent variables
We measure the burden of a given tax as the tax ratio, or the revenues from the tax
standardized as a percentage of GDP, following a common practice in the comparative political
economy of taxation (Campbell 2005b; Kiser and Lang 2001; Slemrod 2004; Swank and
Steinmo 2002). We capture the institutional features of taxation with a series of three dummy
variables. The first is for taxes on income that are self-assessed.7 The second dummy variable
represents taxes on income, earnings or payroll that are withheld at source. We code a tax as
withheld at source only if tax on earnings is withheld from paychecks. Our data on the
institutional arrangements for income tax assessment and collection come from OECD
5
The 57 demands analyzed in this paper represent 67 unique events, many of which duplicated demands made by
other protests in the same year, and many of which also made demands concerning multiple taxes. Of these 67
protest events, numerical estimates of participation were available for 53, or 79%. Where a range of estimates was
reported, we coded the low estimate. Where a nationwide general strike was reported without a numerical estimate,
we inferred an estimate based on Visser’s data on union membership. Among these 53 protest events, the minimum
participation was “more than 100,” and the median was 30,000. In some countries, notably Italy and France, the
Times recorded several general strikes against the government’s tax policy that involved millions of participants.
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We conducted a Hausman test of the country-level random-effects estimator against a fixed-effects estimator with
country-level intercepts for our full model (Model 4). The test failed to reject the null hypothesis that country-level
effects were uncorrelated with the measured covariates; thus, the more efficient random-effects estimator is
preferred.
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We code a tax as self-assessed only if the majority of wage-earners are required to calculate their income tax
liability; thus, Britain receives a code of 0 despite recent moves toward partial self-assessment for high-income
taxpayers.
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publications on tax administration (Organisation for Economic Co-Operation and Development
1990; Organisation for Economic Co-Operation and Development 2006), supplemented by data
on the timing of major income tax reforms from European Taxation magazine (1965-2000),
Income Taxes outside the United Kingdom (Great Britain. Board of Inland Revenue 1966-1983)
and Tax Systems of the World (New York State Tax Commission and Commerce Clearing House
1940-1952).
The third dummy variable represents taxes on goods and services that are price-inclusive,
i.e., included in retail prices. We assigned the code for price inclusion based on the main sales or
value-added tax in a country. Following Kato (2003), we code a VAT as price-inclusive if it was
enacted before 1980. We also code manufacturing and wholesale sales taxes (as opposed to retail
sales taxes) as price-inclusive. Our data on the type of sales tax and the date of adopting VAT
come from Kato (2003).
We include a variety of controls for time-varying elements of the political opportunity
structure. Social movement scholars commonly argue that the presence of partisan allies or
enemies in government affects the likelihood of protest (McAdam 1982; McAdam 1996;
McAdam and Su 2002; Meyer 2004; Nam 2007; Soule, McAdam, McCarthy, and Su 1999;
Tarrow 1996; Tarrow 1998; Van Dyke 2003). We therefore include a variable for left party share
of the cabinet. We include a separate variable for left party share of the legislature, in keeping
with recent scholarship that demonstrates independent (and sometimes opposing) effects of
partisan allies or rivals in the executive and legislative branches (Jenkins, Jacobs, and Agnone
2003; Van Dyke 2003). We are agnostic about the direction of the expected relationships:
potential tax protesters may perceive left governments as allies or as enemies, and either threat or
opportunity effects may predominate. We also include a dichotomous variable equal to one in an
election year, since scholars have argued that disruptive protest may be an especially effective
and therefore especially inviting strategy when parties face electoral competition (Jenkins,
Jacobs, and Agnone 2003; McAdam 1982; Piven and Cloward 1979). Other characteristics of the
political opportunity structure commonly emphasized in cross-national studies—such as the
formal distribution of voting rights, the availability of institutional access points, and the
centralization of bureaucratic authority (Kitschelt 1986; Kriesi, Koopmans, Duyvendak, and
Giugni 1995; Tarrow 1996)—are temporally invariant in the sample analyzed here. Our randomeffects modeling strategy controls for these static dimensions of opportunity structure, although
it does not allow us to measure their independent effects.
We also include control variables that have been found to be significant in prior
quantitative studies of tax-welfare backlash. The first is real GDP per capita, in 1996 US dollars.
Wilensky (2002) reports that tax protest is common in less developed economies (see also
Ardant 1965). The second is social security transfer expenditures standardized as a percentage of
GDP. Many scholars have argued that tax protest is, in part, a backlash against the growth of
social spending (Rosenberry 1982; Wilensky 1976; Wilensky 2002).
Descriptive statistics and data sources for all of these independent variables are presented
in Table 1. We lag all independent variables and control variables one year to insure proper
causal order, with the exception of election years, which are assumed to affect protest in the year
that they occur, if at all. We deal with missing values by listwise deletion.
WHICH TAXES DO PEOPLE PROTEST, AND WHY?
10
Our database provides the first systematic evidence that taxes do indeed differ in the
frequency with which they are targeted for protest. We present the raw frequency distribution of
protest events across categories of taxation in Table 2. The table shows that taxes on goods and
services were the most common object of protest: almost half of all protest events recorded in
our database expressed the demand to cut these taxes. This finding is surprising in light of
Wilensky’s (1976, 2002) claim that consumption taxes are the least prone to tax revolts, but—as
noted above—it is consistent with other studies of tax perceptions and voting behavior that do
not commit an ecological fallacy. In other respects the findings are congruent with Wilensky’s.
Income taxes are highly prone to protest. Payroll taxes are comparatively immune.
What makes some of these taxes more odious than others? We addressed this question
with a series of regressions reported in Table 3. Model 1 includes indicator variables for income
and goods and services taxes, since these are the two most likely to provoke protest; Model 2
introduces controls for the magnitude of the tax burden; Model 3 includes indicators of various
specific institutional characteristics of taxation; and Model 4 includes a full set of controls for
political opportunities, economic development, and social spending. In order to focus attention
on robust results, we report and discuss the estimates from a fifteen-country sample that excludes
Italy, which a jackknife diagnostic revealed to be an influential outlier. We report the results of
the full sixteen-country analysis and the jackknife in Appendix B.
Tax policy does indeed affect tax protest. Our principal finding is that the heavier the tax,
the more likely it is to become an object of protest. This association is by far the strongest in the
data. It lends support to the theory that protest responds to policy threats even more than to
political opportunities (Campbell 2003; Miller and Krosnick 2004). To illustrate the magnitude
of the association, Table 4 translates the logit coefficients into predicted probabilities of protest
under various counterfactual scenarios. We set all control variables equal to their values for an
approximately average case (Finland in 1985), and explore the effect of setting tax policy
variables at different levels within the range that is historically observed for this tax in this
sample. For a self-assessed income tax withheld at source, increasing the tax ratio from the
bottom of its range to the top would increase the predicted probability of protest from zero to six
percent. For an administratively assessed income tax that is not withheld at source, increasing the
tax ratio from the bottom to the top of its historically observed range would increase the
predicted probability of protest from 2% to 32%.
We also find some evidence that traceability matters. In particular, a tax withheld at
source is unlikely to provoke protest. The coefficient for withholding is robust across samples,
sharply estimated, and nontrivial. Table 4 shows that in historically plausible scenarios,
withholding at source reduces the probability of protest against the income tax by half or more.
For example, in the case of an heavy and administratively assessed income tax, withholding
reduces the probability of protest from 36% to 11%.
By contrast, we do not find support for any of the salience-related hypotheses. Although
the coefficient for self-assessment is moderately negative, suggesting a salience effect, this
coefficient is neither robust across samples nor statistically significant at conventional levels.
Nor does price inclusion appear to have any effect. The coefficient for price inclusion in Model 4
is barely distinguishable from zero, and has little effect on the predicted probability.
Together, magnitude and traceability appear to account for at least some and possibly all
of the differences in rates of protest across categories of taxation. In Model 1, the coefficients for
income tax and goods-and-services tax are both statistically significant and substantial in
magnitude. In Model 3, which controls for magnitude and traceability, the coefficients for
11
income and goods-and-services taxes are indistinguishable from zero at conventional levels of
significance. In order to test whether the decline in the size and significance of these coefficients
was a statistical artifact, we standardized each coefficient for the variance of the underlying
latent continuous dependent variable, following Mare (2006: 30n1), and then constructed a
standard deviation for the difference in the standardized logit coefficients across models
according to the formula suggested by Clogg et al. (Clogg, Petkova, and Haritou 1995). The
results indicated that the decreases in these coefficients across models are significant at the p<.05
level.
Changing political opportunities appear to have some impact on the emergence of tax
protest demands, net of the effects of changing tax policies. Protests are least likely in election
years. They are most likely when a left government is in power and when left parties are in the
legislative minority. Left governments may be more likely to threaten tax increases, and
protesters may anticipate a greater likelihood of blocking tax increases when the governing party
is in the minority. Model 4 also implies that tax protest demands became slightly less likely with
economic development and with increased social security spending, at least in this sample of
countries and years. But neither coefficient is substantively very great.
Main findings are not sensitive to media selection bias
Are these results sensitive to selection biases in the New York Times’s coverage of protest
events? Although we designed our data collection strategy to minimize selection biases to the
extent possible, the problems with using newspaper data are potentially severe. We tested the
sensitivity of the results in Model 4 to several plausible but unmeasured media selection biases.
First, we re-coded the dependent variable to exclude the founding of protest parties and the use
of the referendum. Prior studies demonstrate that these conventional forms of protest are an
important part of the common protest repertoire in affluent democracies (Kriesi, Koopmans,
Duyvendak, and Giugni 1995) and perhaps of the repertoire of tax protest movements in
particular (Lo 1990; Wilensky 1976; Wilensky 2002). Nevertheless, newspaper coverage may be
assumed to underrepresent these forms of protest insofar as it skews towards large, public,
disruptive events (Earl, Martin, McCarthy, and Soule 2004; Maney and Oliver 2001; McCarthy,
McPhail, and Smith 1996; Myers and Caniglia 2004; Oliver and Maney 2000; Ortiz, Myers,
Walls, and Diaz 2005). By narrowing our attention to the most unconventional and disruptive
forms of protest, as in Model 5, we reduce the effect of media selection bias on the measurement
of our dependent variable.
Second, we added year-specific dummy variables to the specification. Students of media
bias have argued that coverage of specific issues may vary over time with their salience to the
public and the size of the “news hole” (Myers and Caniglia 2004; Oliver and Maney 2000; Ortiz,
Myers, Walls, and Diaz 2005); the inclusion of year dummies in Model 6 controls for
unmeasured fluctuations in these variables, and tests the sensitivity of the results to the
assumption of a logistic functional form for the baseline hazard rate (Box-Steffensmeier and
Jones 2004).
Third, we addressed a probable source of geographic bias by dropping the U.S. from the
analysis in Model 7. Newspapers typically have substantial biases towards reporting events that
are geographically proximate (Myers and Caniglia 2004; Oliver and Maney 2000; Ortiz, Myers,
Walls, and Diaz 2005), and the majority of every issue of the New York Times is devoted to
reporting on events in the U.S. Thus, it is reasonable to assume that geographic bias might affect
12
our conclusions when the U.S. is included in the sample. Once the U.S. and Italy are both
excluded from the sample, self-assessment perfectly predicts the absence of protest, so we
exclude the dummy variable for self-assessment from Model 7.
Fourth, we attempted to control directly for time-varying, country-specific biases in the
attention of the New York Times. Recent research demonstrates that geographic biases in
newspaper coverage of protest events may vary substantially over time (Earl, Martin, McCarthy,
and Soule 2004; Maney and Oliver 2001; Oliver and Maney 2000; Oliver and Myers 1999; Ortiz,
Myers, Walls, and Diaz 2005). We therefore controlled for coverage directly by introducing an
exogenous variable in Model 8 to represent the total number of articles published in the New
York Times in year t in which country j was mentioned by name. Models including this variable
offered a particularly conservative test of our hypotheses, because they control not only for
differences in the likelihood that an event will be reported, but also for any genuine differences
that may exist in the underlying frequencies of newsworthy events. We introduced these
adjustments in cumulative fashion, so that Model 8 is an event history model of unconventional
protest events outside the U.S., with fixed year effects and explicit controls for New York Times
coverage.
None of these models weakens our substantive conclusions. The estimated coefficients
for the tax ratio and for withholding at source in Models 5 through 8 are comparable in
magnitude to the coefficients reported in Model 4. In every model but Model 6, both of these
coefficients remain statistically significant at the p<.10 level or better. It is still possible that
some systematic media bias affects our estimates of the vulnerability of different taxes to protest
demands. To fully explain away the coefficients for tax policy variables estimated in Model 8,
however, the hypothesis of selection bias would require all of the following assumptions to be
met: that the staff of the New York Times consistently found protest against some categories of
tax more newsworthy than protest against other categories of tax; that this bias was
geographically and temporally invariant over the fourteen-country sample and the 35-year period
analyzed in Model 8; and that the magnitude of this bias was comparable to the strongest
systematic biases reported in the extensive empirical literature on protest reporting. Our reading
of the literature suggests that these assumptions are implausible. Selective reporting may affect
our sample in other ways, but it probably does not bias our conclusions about which taxes are
subject to protest and why.
CONCLUSION: NOT SALIENCE, BUT MAGNITUDE AND TRACEABILITY
How can policy makers pluck the goose with a minimum of squawking? The classic folk
wisdom has been that they should rely on indirect taxes because the latter are invisible. We have
distinguished two independent ways in which a policy might be said to be visible—its costs
might be salient, and they might be traceable to the actions of policy makers. Although recent
research in behavioral public finance suggests that it is salience that matters for tax avoidance
and consumer choice (Chetty, Looney, and Kroft 2007; Finkelstein 2007)—classic dependent
variables of mainstream public finance research—our research suggests that it is traceability that
matters more for tax protest. And it is tax protest that is arguably of greater immediate interest to
democratically elected officials, for good or ill.
The lesson of this study for social movement scholarship is that policy threats matter, but
that policy makers can affect perceptions of threat by how they design a policy. Even a
manifestly burdensome condition may not provoke protest if its burdens are not easily traced to
13
the actions of policy makers. Our findings also suggest that no extraordinary deception, and
perhaps even no active framing effort of any kind, is necessary to conceal policy-makers’
responsibility. It suffices to impose the costs of the policy indirectly, e.g. via withholding at
source. Everyday cognitive biases will do the rest.
Our findings also have an important lesson for welfare state research. Much ink has been
spilled in the field to explain how large welfare states endure in a world of mobile capital. Prasad
(2005) summarizes one common answer: big welfare states survive by building their budgets on
consumption taxes that “are ‘invisible’ and do not provoke resistance” (2005: 362). Our findings
imply that this answer is wrong. Reliance on consumption taxes is no proof against resistance.
Future research will have to sort out whether tax protest has any effect on social spending.
14
TABLE 1
Descriptive statistics for covariates of tax protest
(N=3,210 country-tax-years)
Std.
Variable
Mean Dev.
Min.
Max.
Source
A. Control variables measured at the level of the country-year
Penn World Tables
(Huber, Ragin,
Stephens, Brady,
and Beckfield
Real GDP per capita (1996 $1,000s) 17.55
4.12 8.51
30.19
2004)
International
Labour
Organisation,
Social security transfers (% GDP)
13.99
4.6
3.72
28.91
(Huber et al. 2004)
Left party share of cabinet
37.2
39.23 0
100
(Huber et al. 2004)
Left party share of legislative seats
38.04
15.1 0
68.4
(Huber et al. 2004)
(Budge,
Klingemann,
Volkens, Bara, and
Election year (1=yes)
0.28
0.45 0
1
Tanenbaum 2001)
B. Independent variables measured at the level of the country-tax-year
(Organisation for
Economic CoOperation and
Tax ratio (% GDP)
5.99
6.36 0
30.59
Development 2003)
Self-assessed? (1=yes)
0.03
0.18 0
1
Various (see text)
Withheld at source? (1=yes)
0.48
0.5
0
1
Various (see text)
Included in price? (1=yes)
0.11
0.31 0
1
Various (see text)
Income tax? (1=yes)
0.17
0.37 0
1
OECD 2003
Goods and services tax? (1=yes)
0.17
0.37 0
1
OECD 2003
15
TABLE 2
Which taxes are objects of protest?
Protest events against taxes in sixteen rich democracies, 1966-2000
Tax (OECD classification)
Taxes on income, profits, and capital gains (1000)
Social security contributions (2000)
Taxes on payroll and workforce (3000)
Taxes on property (4000)
Taxes on goods and services (5000)
Other taxes (6000)
Events
N
%
20
30%
11
16%
0
0%
5
7%
33
49%
5
7%
Note: Total N=67 events. Percentages do not sum to 100% because categories are not mutually
exclusive: several events protested more than one tax.
16
TABLE 3
The determinants of tax protest:
Logit regression of protest demands over six taxes in 15 rich democracies, 1965-2000
Income tax
Goods and services tax
Model 1
1.33**
(0.44)
2.18***
(0.38)
Model 2
0.74
(0.53)
1.75***
(0.42)
0.07*
(0.03)
Model 3
0.51
(0.57)
0.61
(0.69)
0.15**
(0.05)
-0.64
(1.16)
-1.47*
(0.72)
0.02
(0.57)
-5.79***
(0.45)
-0.00
(0.40)
33.16
2
-193.98
3,000
15
131
43
-6.13***
(0.50)
0.05
(0.40)
34.27
3
-192.15
3,000
15
131
43
-5.70***
(0.53)
0.64
(0.46)
35.55
6
-190.08
3,000
15
131
43
Tax ratio
Self assessed
Withheld at source
Included in price
Real GDP per capita
Social security transfers/GDP
Left party share of cabinet
Left party share of legislature
Election year
Intercept
ln(σ2u)
Model 4
0.45
(0.57)
0.42
(0.76)
0.16**
(0.05)
-0.77
(1.22)
-1.47*
(0.72)
0.21
(0.62)
-0.06
(0.05)
-0.07
(0.07)
0.01†
(0.01)
-0.03†
(0.02)
-0.76†
(0.43)
-3.06**
(1.10)
0.10
(0.51)
42.28
11
-183.71
3,000
15
131
43
Wald χ2
d.f.
Loglikelihood
N (country-tax-years)
N (countries)
N (spells)
N (protest demands)
Standard errors in parentheses.
† p<.10 (two-tailed) * p<.05 (two-tailed) ** p<.01 (two-tailed) *** p<.001 (two-tailed)
TABLE 4
Probabilities of tax protest predicted under various counterfactual tax policies
Income tax that is...
When tax ratio is...
Low
High
2%
36%
1%
21%
1%
11%
0%
6%
Administratively assessed, collected directly
Self-assessed, collected directly
Administratively assessed, withheld at source
Self-assessed, withheld at source
Consumption tax that is...
When tax ratio is...
Low
High
1%
5%
1%
6%
Not included in prices
Included in prices
Predictions are based on Model 4. All control variables are set at their values for Finland in
1985, to approximate the sample average while ensuring that assumed values are historically
cotenable. Low and high tax ratios are set within the historical range for the relevant tax within
our sample of countries and years. A low tax ratio is 10% of GDP for income taxes and 5% for
consumption taxes. A high tax ratio is 30% for income taxes and 15% for consumption taxes.
18
TABLE 5
Are the results sensitive to media selection bias?
Logit regression of unconventional protest demands, with controls for reporting bias
Model 5 Model 6
Model 7
Model 8
Income tax
0.57
0.62
0.34
0.33
(0.63)
(0.65)
(0.66)
(0.66)
Goods and services tax
1.16
1.38
0.64
0.63
(0.91)
(0.97)
(1.14)
(1.11)
Tax ratio
0.14*
0.14*
0.17*
0.17*
(0.06)
(0.06)
(0.07)
(0.07)
Self assessed
0.36
0.37
...
...
(1.29)
(1.33)
Withheld at source
-1.41†
-1.40
-1.78†
-1.82†
(0.84)
(0.86)
(0.96)
(0.95)
Included in price
-0.19
-0.27
0.06
0.03
(0.64)
(0.72)
(0.78)
(0.76)
Real GDP per capita
-0.05
-0.08
-0.20
-0.14
(0.06)
(0.18)
(0.22)
(0.21)
Social security transfers/GDP -0.05
-0.06
-0.08
-0.05
(0.08)
(0.10)
(0.10)
(0.10)
Left party share of cabinet
0.01
0.01
0.01
0.01
(0.01)
(0.01)
(0.01)
(0.01)
Left party share of legislature -0.02
-0.02
-0.02
-0.01
(0.02)
(0.02)
(0.03)
(0.02)
Election year
-0.80†
-0.76
-0.96†
-0.98†
(0.46)
(0.50)
(0.54)
(0.54)
Articles
...
...
...
0.00
(0.00)
DV excl. conventional protest Y
Y
Y
Y
Model incl. year FE
Y
Y
Y
Sample excl. USA
Y
Y
Controls for NYT coverage
Y
2
ln(σ u)
0.14
0.25
0.23
-0.24
(0.52)
(0.54)
(0.53)
(0.72)
2
Wald χ
41.15
47.74
43.53
44.73
d.f.
11
45
45
45
Loglikelihood
-163.49
-138.04
-124.06
-123.43
N (country-tax-years)
3,000
3,000
2,802
2,802
N (countries)
15
15
14
14
N (spells)
126
126
117
117
N (protest demands)
38
38
35
35
Standard errors in parentheses.
† p<.10 (two-tailed) * p<.05 (two-tailed) ** p<.01 (two-tailed) *** p<.001 (two-tailed)
19
APPENDIX A
THE COMPARATIVE TAX PROTEST DATABASE
The Comparative Tax Protest Database contains codes describing tax-related protest
events in 16 rich, democratic countries from the 1960 through 2000. In order to minimize
selection bias, we used a combination of “generic event descriptor” and “event-specific” search
strategies to locate events in the full text of the Times, using the ProQuest Historical New York
Times database (Maney & Oliver 2001). Our generic event descriptor was the following keyword
string:
“Country Name” w/doc tax* w/doc (demonstrat* or rall* or vigil* or picket* or strik* or
campaign* or boycot* or petition* or riot*)
where "Country Name" was replaced by the name of a particular country (including variants),
“*” represents a wild-card, and “w/” represents the Boolean operator “and”. We read every
resulting story, and coded all episodes of protest that we found.
Our event-specific search strategy identified gaps in the resulting series of events by
relying on the secondary literature (Confalonieri and Newton 1995; Flora 1986; Heidenheimer,
Heclo, and Teich Adams 1990; Hibbs and Madsen 1981; Peters 1991; Wilensky 1976; Wilensky
2002) and on our reading of every article in Keesing’s Record of World Events mentioning “tax”
or a cognate terms in conjunction with the name of any country in the sample. We filled in the
gaps we identified by locating events in the Times and coding the description presented there. All
codes were based on descriptions in the New York Times or Keesing’s Record of World Events
where possible, though in a few cases we also referred to other periodical sources in order to
identify the tax or taxes at issue.8
For inclusion in the database, an event had to satisfy three criteria: it had to involve (1)
nongovernmental (2) collective action (3) in protest against existing or proposed taxes. The
nongovernmental criterion was meant to exclude events whose only participants were
governmental actors, a category that we construed to include elected and appointed public
officials and political parties that were already represented in government or legislative bodies. It
was not meant to exclude ballot initiative campaigns or the founding of new political parties. Our
criterion for identifying an instance of collective action was the reported participation of three or
more people. In practice, all events in the database far exceeded this threshold (see fn. 4). The
third criterion—action in protest against existing or proposed taxes—was the most problematic.
This criterion required us to make inferences about the tax-related substance of protesters’
demands. Where possible, we relied on the direct evidence of protesters’ own statements, as
quoted or paraphrased in the Times (e.g., “The shopkeepers carried banners bearing such slogans
as ‘Less Government, Lower Taxes’...” [Dionne 1983: A4]). Direct evidence was available for 7
of 67, or 10% of the events analyzed in this paper. If there was no direct evidence, we relied on
reporters’ explicit statements imputing tax-related motives or demands to protesters (e.g., “The
truckers are demanding... special advantages involving fuel and insurance taxes” [Vinocur 1984:
11]). Explicit statements imputing tax-related demands were available for 52 of 67, or 78% of
8
We also spot-tested our generic event descriptor search string in the full-text searchable Historical Wall Street
Journal database, on the assumption that we could improve the validity of our data collection by consulting a
newspaper that may have different and ideologically opposed editorial biases. We found no additional protest events
in France or the U.S.
20
the events analyzed in this paper. If the reporter did not explicitly impute motives or demands,
we inferred the presence of tax-related protest demands where the reporter appeared to impute
tax-related motives implicitly by the association of events in the article (e.g., “While the chamber
began a debate on the proposed new taxes and other unpopular measures to head off national
insolvency, millions of Italians were on strike” [Hoffman 1974: 3]). Indirect inference was
necessary for 8 of 67, or 12% of the events analyzed in this paper.
21
APPENDIX B. ACCOUNTING FOR PROTEST AGAINST ITALIAN INCOME TAXES
Because Italy proved to be an influential outlier in all of our models, we conclude with a
brief discussion of Italian tax protest. Italy contributed a substantial fraction of the protest
demands in our database (14 of the 57 demands analyzed in this paper). As Table A illustrates,
these protest demands exercise substantial influence on the statistical results when these are
estimated over the full sixteen-country sample. Two findings are noteworthy. First, the frequency
of protest against Italy’s self-assessed income taxes was sufficient to create a strong, positive and
statistically significant relationship between self-assessment and protest in our sixteen-country
sample that is not apparent in the fifteen-country sample that excludes Italy. Second, the lower
and upper bounds of the coefficient estimates from a jackknife analysis show that Italian tax
protests exercise a great deal of influence on other coefficient estimates as well: for eight of the
twelve coefficients, either the upper or the lower bound on the coefficient estimates is the
coefficient estimated over the sample excluding Italy. In other words, the estimates in the
sixteen-country sample are heavily dependent on Italian tax protest.
The finding that Italy is an outlier in protest is consistent with the stylized observations
that Italian politics in this period were especially contentious across a variety of policy domains
(Franzosi 1995; Tarrow 1989), and that Italian patterns of contention do not always fit
comparative models well (see Nam 2007). But they raise the question of whether the Italian tax
protests are to be interpreted as an especially informative case, or as a source of idiosyncratic
noise that swamps the systematic patterns in the data. We address this question by presenting
qualitative and historical data on Italian tax protest.
First, is the measured coefficient of self-assessment spurious, or does the historical record
support the view that self-assessment contributed to the high rate of protest against income taxes
in Italy? The historical data suggest strongly that self-assessment mattered. Income tax protest
broke out when the Italian state took conspicuous steps to control taxpayers’ declarations of their
own tax liabilities. Although comparative data on income tax evasion are poor, income tax
evasion was reported to be widespread in Italy, particularly among the self-employed, who were
believed generally to under-assess their own incomes (Contini 1989; Peters 1991). The Italian
state sought to increase its powers to control income tax evasion. Taxpayers often identified the
state’s efforts to control tax evasion as the events that triggered their protests. In 1971, for
example, the state proposed a tax reform that aimed to curb tax evasion by professionals, and
Italian professionals responded by going on strike (New York Times 1971). In 1980, a proposed
tax reform that would require restaurants to submit receipts with their income tax declarations
provoked a one-day strike by restaurant owners and their employees (Tanner 1980). In 1984,
new legislation designed to make it harder for shopkeepers to evade income taxes provoked a
one-day strike by shopkeepers (Dionne 1984). Throughout this period, the state compensated for
tax evasion by raising tax rates, inspiring the resentment of wage-earners who were subject to
withholding and did not enjoy the same opportunities for tax evasion that self-employed
proprietors and professionals did. In 1992, union leaders responded by calling a strike to demand
explicitly that the government shift the tax burden from workers to the self-employed (Tagliabue
1992). The government offered a proposal that would side-step the difficult task of surveillance
by simply requiring all self-employed people to declare a minimum taxable income of $20,000—
and thereby provoked one-day protest by shopkeepers (Cowell 1992). All told, at least five of
Italy’s 14 large tax protests recorded in our database were directly connected with the state’s
efforts to monitor the self-assessment of income tax. By comparison, none of the protests
22
recorded in our database were connected with administratively assessed payroll taxes or social
security contributions.
Second, what of protest against other taxes in Italy? The frequency of protest against
goods and services taxes may have to do with the contentious protest repertoire of Italy’s
famously strike-prone labor unions (Franzosi 1995; Tarrow 1989). Union leaders often included
cutting regressive sales taxes as one item on a long list of protest demands when they took to the
streets. But the pattern of sales tax protest also appears to be at least partly spillover from conflict
over Italy’s self-assessed income taxes. Public officials attempted to compensate for their
inability to assess income by raising taxes on more easily monitored commercial transactions—
including purchases of consumer goods and professional services—and thereby provoked protest
by salespersons and professionals.
In conclusion, we emphasize two points. First, the positive coefficient for self-assessment
when Italy is included in the analysis provides further support for our argument that traceability
is conducive to tax protest. Second, the main empirical conclusions of this paper are robust to the
inclusion or exclusion of Italy. Income and consumption taxes are common objects of protest,
and payroll taxes are not. The vulnerability of a tax to protest depends partly on its magnitude,
and partly on whether it is collected at the source. People are most likely to protest taxes that are
both burdensome and traceable.
23
TABLE A
The influence of Italian tax protest:
Logit regression of protest demands over six taxes in 16 rich democracies, 1965-2000
16-country
sample
Income tax
Goods and services tax
Tax ratio
Self assessed
Withheld at source
Included in price
Real GDP per capita
Social security transfers/GDP
Left party share of cabinet
Left party share of legislature
Election year
Intercept
ln(σ2u)
0.84
(0.56)
0.97
(0.73)
0.11*
(0.05)
1.24†a
(0.66)
-1.18†
(0.65)
0.12
(0.54)
-0.08†
(0.05)
-0.04
(0.06)
0.00
(0.01)
0.01
(0.02)
-0.40
(0.34)
-4.17***
(1.09)
0.77
(0.55)
52.23***
Jackknife
(all possible 15-country samples)
Min.
Max.
[0.45
1.90]
[0.42
1.55]
[0.04
0.16]
[-0.77
2.67]
[-1.47
-0.81]
[-0.22
0.32]
[-0.10
-0.03]
[-0.12
-0.02]
[0.00
0.01]
[-0.03
0.02]
[-0.76
-0.29]
[-4.54
-3.06]
Wald χ2
d.f.
11
Loglikelihood
-231.99
N (country-tax-years)
3,210
Standard errors in parentheses.
† p<.10 (two-tailed) * p<.05 (two-tailed) ** p<.01 (two-tailed) *** p<.001 (two-tailed)
a
The sign and statistical significance of this coefficient depend on the inclusion of Italy
Bold indicates a coefficient that was estimated on the 15-country sample that omits Italy.
24
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