Commercial Licenses as Political Contracts

From 1791 to 1793 and again from 1795 to 1798, the deputies taxed work through occupational licenses called the patente. This chapter reveals how the revolutionaries refracted the relationship among work, property, and autonomous citizenship through this tax. To replace the revenue generated by guild fees, the deputies created graduated tax brackets to target the wealth generated by an individual’s occupation. By exchanging fees for permissions, the patente created a fiscal contract between citizens and the state that mirrored the social contract. Legislators assessed the patente according to criteria for full citizenship including independence and immobile property. From 1796 to 1798, the patente fashioned a type of economic citizenship not predicated on gender and enabled the Dames to form a fiscal contract with the nation, unlike all male wage laborers. In patente hearings before justices of the peace, the Dames articulated their trade as autonomous work. When the deputies reorganized taxes by familial unit and exempted food retailers in 1798, the Dames lost their licenses and fiscal autonomy. The Directory simultaneously reconsolidated political authority into male heads of households.

Getting to Sweden

This chapter argues that the roots of Sweden’s exceptional tax state lie in the early modern period. From c.1530 the state began monitoring economic activity and developing a direct vertical fiscal contract between the king and his subjects. The extensive data collected by the state, with the assistance of the newly reformed Church, facilitated fairness in the distribution of tax and conscription burdens and fostered a horizontal contract between subjects. With a free peasantry and a weak nobility, the state’s relationship with the peasantry was direct and unmediated. Furthermore, late industrialization preserved a tax structure and administration based on direct taxes that could easily adapt to the collection of modern taxes. Taken together, these factors explain how Sweden, over the course of 400 years, cultivated its fiscal capacity and strengthened the fiscal contract between ordinary taxpayers and the state.

Taxing Higher Incomes: What Makes the High-Income Earners Consent to More Progressive Taxation in Latin America?

When do high-income earners get ‘on board’ with the fiscal contract and accept paying a larger share of the tax burden? Progressive taxes perform particularly poorly in developing countries. We argue that the common opposition of the affluent to more progressive taxation is not merely connected to administrative limitations to coercively enforce compliance, but also to the uncertainty that high-income earners associate with the returns to taxes. Because coercion is not an option, there is a need to convince high-income earners to ‘invest’ in the public system via taxes. Trust in institutions is decisive for the fiscal contract. Expecting that paid contributions will be used in a sensible manner, high-income earners will be more supportive of progressive income taxation. We study tax composition preferences of a cross-section of Latin American countries using public opinion data from LAPOP for 2012. Findings reveal that higher levels of trust in political institutions strongly mitigate the opposition of the affluent towards more progressive taxation.

Foreign Aid and Government Legitimacy

Branding of foreign aid may undermine government legitimacy in developing countries when citizens see social services being provided by external actors. We run a survey experiment on a sample of Indian respondents. All subjects learn about an HIV/AIDS program; treated subjects learn that it was foreign-funded. We find null results that, along with existing results in the literature obtained from observational data, call into question the view that foreign-funded service delivery interferes with the development of a fiscal contract between the state and its citizens.

The Fiscal Contract: States, Taxes, and Public Services

Using data from approximately ninety countries, the author shows that the more a state taxes the rich as a percentage of GDP, the more it protects property rights; and the more it taxes the poor, the more it provides basic public services. There is no evidence that states gouge the rich to benefit the poor or vice versa, contrary to state-capture theories. Nor is there any evidence that taxes and spending are unrelated, contrary to state-autonomy models. Instead, states operate much like fiscal contracts, with groups getting what they pay for.