Why Tax Systems Differ: A Comparative Study of the Political Economy of Taxation

by Cedric Sandford

This book analyses and compares taxation in different countries. It looks at what tax systems have in common, how they differ and seeks to explain the the similarities and the differences. No attempt is made to confine the analysis on each topic to the same group of countries. Whilst the emphasis is on the larger advanced countries, countries are drawn on from all round the world according to the nature of the topic and the data available. The book seeks to answer questions such as: Why do developing countries rely heavily on indirect taxes? Why is income tax the dominant tax in advanced countries? Why is the property tax the most widely used tax in local government? Why do some countries have more tax expenditures than others? Why has VAT become the dominant sales tax world-wide? Why do less than half OECD countries have annual wealth taxes? Why are there so many differences in the way countries tax corporate income and capital gains? What are the keys to success in tax reform? And many more. In seeking to answer these questions the author draws on economic theory but also recognises the significance of historical, legal and social differences, the importance of constitutional constraints, the influence of geography and globalisation and the often decisive role played by the convictions and whims of politicians.

224 pages, Paperback

First published September 1, 2000

Reviews

[Kyle Macleod]

Very interesting and thorough guide; I’m often surprised while reading Sandford’s work at how he manages to maintain a comprehensive knowledge of around 11 different country’s fiscal systems. His commentary on the UK tax reforms of the 80s provided me with several useful pieces of knowledge unavailable in any other books I’ve read covering the period. I’ve got a couple more of his books to read which I think will be quite helpful.

Sandford is undoubtably the GOAT of tax sociology.

[Donald Morris]

This is not a new book, it was published in 2000, but it is one of the best I have seen offering an overview of the choices we face regarding taxes and tax reform. Sanford traces the differences in tax systems to two primary causes. One is a county’s choice of a unitary-style government as opposed to a federalist-style government and the second is the level of economic development. Countries that are less developed economically must rely more on indirect taxes, such as tariffs and excise taxes, while more developed countries are able to employ direct taxes, such as income or real estate taxes. According to Sanford, “An income tax requires a greater degree of sophistication in its administration than indirect taxes. Many developing countries lack a reliable data base to operate an extensive income tax; more important, income tax cannot be a widespread tax in many developing countries, partly because of widespread illiteracy, but, even more, because of poverty.”
For federalist countries, like the United States, where government and taxation are shared between a national level government and various local level governments, the author provides eight specific qualities that will differentiate a better from a worse local tax system. 1) The tax base should be evenly distributed across the country. 2) It should be economical to operate on a small scale and be difficult to evade. 3) The tax base must not relate to something that is easily transferred across local authority boundaries. 4) It should generate a high and reliable yield because a local authority is likely to have only one or two substantial sources of revenue. 5) It should not exaggerate local disparities of wealth—it should not offer undue encouragement for the rich in poor areas to move to rich areas, or the rich areas will get richer and the poor areas will get poorer. 6) It is desirable for a local tax to be reserved for local use, that is, not also imposed by central government. 7) It is important that a tax at local or state level should be perceptible, that is that people should know when they are paying a state or local tax. 8) It should promote local accountability and therefore responsibility in decision-making by local or state authorities. The interesting but unstated corollary to these eight directives is that they are less important on a national level—and for those interested in the prospect of tax reform—we should be prompted to ask why.
Aside from these general observations, which I found useful, the book contains numerous tables comparing the percentages that various kinds of taxes represent for different countries. In the case of the statistical tables Sanford cites, he is careful to explain their source and relative reliability. The book also contains chapters on the three basic forms of taxation, consumption, income, and capital or wealth. For each he lists conventional pros and cons. The final two chapters deal with the tax gap (the amount of tax that goes missing each year) and tax reform. Regarding tax reform, the author says he is speaking of tax reform in the sense of change, but not necessarily change for the better. He emphasizes the importance of individual leadership in making changes and the impact of special interest lobbying in maintaining the status quo.