Why the Left Tax Consumption - the Impact of Electoral Systems

This paper is concerned with how electoral systems shape left-wing strategies for redistribution. While it is intuitive to expect the left to push taxation in a progressive direction, empirical evidence shows a strong association between left-wing governments and consumption taxation. In explaining why this is, earlier research has failed to acknowledge how the electoral system affects tax strategies of left governments. This paper argues that high volatility and low opposition influence associated with majoritarian electoral systems induces left-governments to redistribute mainly through progressive taxation, while in proportional representation countries the left opts for a combination of high-yielding consumption taxes and progressive spending. In order to test these claims, I use two types of evidence: a novel dataset on government revenues covering 31 countries from 1800 to 2012 and qualitative archival studies of left-wing tax policy in Sweden and the United Kingdom. The quantitative evidence shows that left governments relies more on income tax in majoritarian countries while they tax consumption heavier in proportional representation systems. The case study presents evidence from two time periods in Sweden and the United Kingdom: 1920-1930 and 1945-1970. Preliminary analysis shows that electoral risk was a main factor in explaining union and Labour resistance to consumption taxes in the United Kingdom. In Sweden on the other hand, the left explicitly combined new consumption taxes with targeted, progressive, spending. The analysis shows that the actors at the time were conscious not only about the economic and revenue effects of taxation, but also the distributive impact and electoral risks.