129
We think that this total change is a lot more far-reaching than we should expect
based on the inertia hypothesis. Additionally, we found that (although reductions
dominate) cumulated increases and reductions were not so very different in extent.
This contradicts our second hypothesis of the dominance of tax reductions. Therefore, we find no evidence for the inertia hypotheses in our data.
3.4 Fiscal illusion by timing of tax reforms
3.4.1 General approach
Governments can not only refrain from changes in tax policy but can as well try to
create “fiscal illusions” to camouflage the real effects of tax policy decisions to
avoid political opposition.233 For our analysis the possibility of manipulating the
citizens by the timing of tax reforms is especially important.234 If the citizens focus
on the fiscal effects of adopted new regulations of tax policy but not so much on the
dates when they become effective, the government can improve its revenue position
at least in the short run.
3.4.2 Hypotheses
From an approach of fiscal illusion with respect to the timing of new regulations in
tax policy we can directly derive two hypotheses which are testable based on our
data-set: If governments tried to camouflage the real tax burden changes and to
improve their revenue position in the short run, we should expect that a larger part of
tax burden increases was implemented retrospectively while reductions were implemented only with a time-lag (fiscal illusion hypotheses I). Citizens who just focus
on the extent of changes could be fooled by this timing of reforms. Additionally, we
would expect that retrospective increases dated back longer than retrospective reductions (fiscal illusion hypothesis II).
233 James Buchanan discusses in “Public finance in democratic process” (1967) several possibilities for governments to camouflage the costs of taxation and to stress the benefits of public
spending. An alternative treatment is Wagner (1976). A general overview of empirical work
on fiscal illusion is given in Dollery/Worthington (1996). Studies which test the relationship
in between the complexity of the tax system and fiscal illusion are for example Heyndels/Smolders (1994) or Worthington (1994).
234 We are not discussing the possibility of biased predictions of financial consequences of tax
reforms here as we have already shown that the expected fiscal effects are largely reliable
(see part III.3).
130
3.4.3 Empirical analysis
As our data-set includes the dates when new tax regulations were adopted as well as
the dates when the regulations became effective, we calculated the shares of tax
reductions and increases which were implemented retrospectively and of those implemented with a time lag. Furthermore, we calculated the average number of days
in between the date of adoption and implementation for all new regulations.
Figure 58 shows the timing of new tax regulations based on the hypotheses of fiscal illusion. We found that the share of regulations implemented retrospectively and
of regulations implemented with a time lag was nearly identical in increases and
reductions (see left part of Figure 58). Furthermore, we found that the average number of days in between adoption and implementation was larger in retrospective
reductions than in retrospective increases. Finally, the number of days for increases
implemented with a time-lag was on average smaller than for reductions implemented with a time-lag (see right part of Figure 58).
FISCAL ILLUSION AND TIMING OF REFORMS, 1964-2004
0
20
40
60
80
100
120
140
160
180
RED INCR
Incr
Incr
Red
Red
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
REGULATIONS IMPLEMENTED
WITH A TIME-LAG
RETROSPECTIVE
REGULATIONS
REGULATIONS IMPLEMENTED WITH A
TIME-LAG: AVERAGE NUMBER OF DAYS
BETWEEN ADOPTION AND
IMPLEMENTATION
SHARE OF REGULATIONS IMPLEMENTED
WITH A TIME-LAG AND RETROSPECTIVE
REGULATIONS
IN INCREASES AND REDUCTIONS
Own calculations based on: Federal Ministry of Finance (2004), Federal Statistical Office (2007).
# of days
-250
-200
-150
-100
-50
0
RED INCR
RETROSPECTIVE REGULATIONS:
AVERAGE NUMBER OF DAYS BETWEEN
ADOPTION AND IMPLEMENTATION
# of days
Figure 58: Fiscal illusion and timing of tax reforms
These empirical findings contradict our hypotheses of the timing of tax reforms
based on fiscal illusion. Tax reductions and tax increases did not differ with respect
to the share of regulations, which was implemented with a time lag or retrospec-
131
tively. And the timing of adoption and implementation of reforms did not improve,
but worsen the revenue position of governments in the short-run. Alltogether we
found therefore no evidence for governments´ attempts to create fiscal illusion via
the timing of tax reforms.
3.5 Opportunistic behavior
3.5.1 General approach and related literature
Public choice has always stressed that self-interest cannot be excluded with respect
to politicians. Politics should be seen “without romance” (Buchanan 2003). Holding
an office has mutual benefits for politicians and creates strong incentives to focus on
re-election. Government policies might therefore be opportunistic in trying to increase their re-election probabilities by economic policy before elections. Tufte
(1978) and Nordhaus (1975) demonstrated in their classical contributions that governments increased transfers, decreased payments and tried to stimulate economic
growth before elections to manipulate the electorate. Taxation does usually play
only a minor role in the study of opportunistic behavior. But this results at least
partly from the fact that reliable data on the timing and the fiscal effects of tax reforms has been scarce.235
3.5.2 Hypotheses
We can directly derive three testable hypotheses based on the general argument of
opportunistic government behaviour. If governments behave opportunistically, we
would expect that they try to increase re-election probabilities by reducing the tax
burden directly before elections while tax burden increases should take place directly after federal elections (opportunism hypothesis I). As citizens are more likely
to react to tax burden changes and not just to tax policy decisions, governments
should try to reduce the tax burden before elections by implemented and not so
much by adopted tax reforms (opportunism hypothesis II). Finally, we would expect
that governments focus on manipulation in the direct taxes (like wage and income
taxes) where tax burden changes are more visible than in the indirect taxes (opportunism hypothesis III).
235 Whether such a strategy is promising and leads to an increase of re-election probabilities
depends on the individual voting decisions. If information is complete and voters behave rational, they should be able to detect such a maneuver. However, as we focus here on an empirical observation, we primarily want to analyze whether opportunistic government behavior
is reflected in the data. In the chapter on economic voting (see part V.4) we discuss whether
we can find an effect of opportunistic behavior on electoral decisions.
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References
Zusammenfassung
Was bestimmt die Steuerpolitik? Welche Ziele verfolgen die Bundesregierungen bei Steuerreformen? Haben Steuererhöhungen und Steuersenkungen einen Einfluss auf die Wahlergebnisse? Auf der Basis eines neuen Datensatzes zu den fiskalischen Effekten von Steuerreformen im Zeitraum von 1964 bis 2004 zeigt das Werk Muster der Steuerpolitik auf und testet zentrale ökonomische Hypothesen. Dabei zeigt sich, dass normative ökonomische Ansätze kaum einen Erklärungsbeitrag für die zu beobachtende Steuerpolitik leisten können.
Ausgehend von wichtigen polit-ökonomischen Theorien zeigt der Autor, dass die Mehrheitskonstellationen im Bundesrat einen wichtigen Einfluss auf die Steuerpolitik haben, allerdings genau umgekehrt wie von der Blockade-Hypothese behauptet: Steuerreformen sind gemessen an ihren Fiskaleffekten bei gegenläufigen Mehrheiten in Bundestag und Bundesrat häufiger und umfangreicher. Des Weiteren gibt es keine Hinweise darauf, dass die parteipolitische Zusammensetzung der Bundesregierung einen wichtigen Einfluss auf Steuerreformen hat. Wahltaktische Terminierungen von Steuerreformen spielen aber sehr wohl eine wichtige Rolle. Eine Auswertung des Zusammenhangs von Steuerreformen und Wahlergebnissen zeigt allerdings, dass die Versuche der Bundesregierungen, ihre Wiederwahlwahrscheinlichkeit durch Steuersenkungen kurz vor der Wahl zu erhöhen, wenig erfolgreich sind: Nicht nur die Jahre unmittelbar vor den Wahlterminen, sondern die Steuerpolitik in der gesamten Legislaturperiode hat einen Einfluss auf die Bundestagswahlergebnisse der regierenden Parteien.