Jeffrey F. Timmons

Lobbying and Taxes

Lobbying dominates corporate political spending, but comprehensive studies of the benefits accrued are scarce. Using a dataset of all US firms with publicly available financial statements, we delve into the tax benefits obtained from lobbying. Firms that spend more on lobbying in a given year pay lower effective tax rates in the next year. Increasing registered lobbying expenditures by 1% appears to lower effective tax rates by somewhere in the range of 0.5 to 1.6 percentage points for the average firm that lobbies. While individual firms amass considerable benefits, the costs of lobbying-induced tax breaks appear modest for the government.

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.

The Political Determinants of Economic Performance: Political Competition and the Sources of Growth

The authors present and test a theory about the effects of political competition on the sources of economic growth. Using Mankiw, Romer, and Weil’s model of economic growth and data for roughly 80 countries, the authors show that political competition decreases the rate of physical capital accumulation and labor mobilization but increases the rate of human capital accumulation and (less conclusively) the rate of productivity change. The results suggest that political competition systematically affects the sources of growth, but those effects are cross-cutting, explainingwhy democracy itself may be ambiguous. These findingshelp clarify the debate about regime type and economic performance and suggest new avenues for research.

Taxation and Representation in Recent History

This paper disaggregates government accounts to examine whether and how representation affects the level and distribution of taxation. Using panel data for over 100 countries from 1970-1999 and cross-sectional data for approximately 75 democracies from 1990-98, we find that both democratization and voter turnout induced a modest but highly systematic increase in revenue from regressive taxes on consumption. While one-third of the increase due to democratization reflects a shift from more inefficient and similarly regressive taxes on trade, most of it was new revenue. Less convincingly, democratization and voter turnout also increased total tax revenue. By contrast, neither democracy, nor voter turnout systematically increased revenue from progressive taxes on income and capital. With reasonable assumptions about tax incidence and participation patterns, these findings shed light on competing conceptions of taxation and representation.

Taxation and Credible Commitment: Left, Right and Partisan Turnover

Building on the fiscal contract literature, this paper argues that taxation is partly a game of credible commitment. Using data for 18 OECD countries, it shows that partisan turnover systematically affects the long-run equilibrium mix of taxes and services. When partisan turnover is low, more right-wing influence permanently increases corporate tax revenue and the corporate share of pre-tax income; more left-wing influence, by contrast, permanently increases consumption tax revenue and social spending. When turnover is high, even powerful partisans do not increase taxes that disproportionately affect their supporters. When partisans tax their own supporters, they raise more revenue, even when we account for some plausible benefits. Our theoretical conjectures are consistent with the pattern of partisan behavior within countries, not just between them.

The Political Economy of Municipal Transfers: Evidence from Mexico

How do fiscal institutions, partisanship and governance affect federal transfers to municipalities? We address this question using a novel research design and dataset for Mexico. We compare the state-level obligations for federal transfers to municipalities with the distribution of these funds as reported by municipalities. This strategy allows us to know whether state-level formulas are binding, whether there are partisan skews in the formula, and how and why governors re-allocate funds. We find that state-level fiscal institutions are quite binding; even so, deviations from the formula total approximately US

Why Not Adopt Better Institutions

300-500M per year. Whereas PRI governors appear to re-allocate to municipalities when they are governed by their co-partisans, PAN and PRD governors appear to re-allocate funds to municipalities for equity, stabilization and disasters (with no detectable partisan bias).

The Political Economy of Fiscal Reforms in Latin America: Mexico

According to Acemoglu, Robinson and Johnson (2002), institutional divergence prior to the Industrial Revolution is the fundamental cause of differences in income levels across countries. To quantify the impact of institutions on long-run growth rates that drive the differences in levels, we adapt their baseline regression. We estimate that improving institutional quality by one standard deviation in their model would have improved a countrys average annual growth rate by only 0.4% over the period from 1820 to 1995. Finite-lived leaders may have preferred the private benefits of expropriation to modest short-run increases in their countrys growth rate, despite the clear long-run benefits of improving institutional quality.

On the (Ir)relevance of Skill Specificity for Social Insurance

This paper describes the main features of the Mexican fiscal system, details the most important changes that have occurred/not occurred over the past two decades, and explains what factors influenced the rate, degree and direction of change. In brief, we contend that there have been profound and ideologically consistent changes in spending assignment and in the institutional arrangements governing taxes, spending and debt management. Over the past 20 years, Mexico has moved from a highly centralized fiscal system characterized by extensive presidential discretion to a moderately decentralized system with more meaningful checks and balances. Decentralization of spending assignments has been coupled with steps designed to increase transparency, efficiency and accountability over public funds. Changes to the revenue collection system, by contrast, have been considerably smaller in magnitude and not quite as consistent in ideational terms; while the general trend has been to increase tax revenue in an equitable manner, not all changes in tax law have increased revenue or equity.

Does Democracy Reduce Economic Inequality? If So, How?

The relationship between specific skills and the welfare state has been the subject of considerable debate. To help resolve the conflict, we present a general model of preferences over social insurance with endogenous wages and investment in specific skills and a variety of exogenous constraints. Our dynamic model underscores the link between wages, skills and unemployment risks. It shows that skill-specificity is irrelevant for preferences over social insurance when wages adjust for investment costs and unemployment risks. We validate the adjustment mechanism with U.S. data. We then extend the model to show how different conditions, including centralized wage bargaining, capital market imperfections, and taxation, affect skill formation and skill-based preferences for social insurance. Our model provides an analytical framework that can reconcile the disparate empirical findings and demonstrates how they, along with Iversen and Soskices seminal results, are special cases of the interaction between labor markets and politics.