The Determinants of Taxation in Britain: An Empirical Test

The effects of political and macroeconomic influences in determining the principal taxes in the United Kingdom since 1948 are examined here. Basic models of tax determination – policy initiative, macroeconomic determination and consumer preference – are tested. Causal path analysis is used to answer the question: Which is more important in determining tax revenues: the policy initiatives of governments, or circumstances in the economy which in the short term may be outside governmental control? The results demonstrate that for most taxes policy initiatives to alter tax rates and bases are much less important to revenue yield than underlying trends in the economy. The continuing strength of these macroeconomic secular trends circumscribes attempts by British policymakers to depart radically from the existing pattern of taxation.