Taxation and democracy

Abstract

Since the principle "no taxation without representation" became a formative feature of modern statehood in the 18th century, taxation and democracy seem to sit happily next to each other. This pre-stabilized harmony looks particularly convincing when "congruence" of those who vote in fiscal matters, those who pay the taxes and those who enjoy the benefits of public spending is given. But more and more situations become visible where the democratic process in fiscal policy doesn't guarantee a fully acceptable outcome. On the one hand, protection of the individual taxpayer might require additional constitutional constraints, in particular in majority-minority conflicts. On the other hand, powerful private players can encroach upon the democratic process, e.g. when factor mobility and tax competition put pressure on the nation state and its policy goals in the area of redistribution and the provision of public goods. Last but not least one can ask whether the mere existence of substantial (direct) taxation is necessary to fuel political activism and to strengthen the citizens' identification with "their" community.