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Political Institutions and the Governmental Burden on Businesses

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  • Ruiqing Zhong
  • Weifeng Zhong

Abstract

Businesses are burdened by government through corporate taxes and bureaucratic procedures. We interpret these two channels as tools for raising revenues and study, theoretically and empirically, how different political institutions rely on these tools. We establish two stylized facts: the degree of democracy has inverted-U relationships with both the bureaucratic and tax burdens. We match these facts with a dynamic political-economic model of fiscal policy where revenues are raised through the burden on businesses and the returns to public capital, and where the degree of democracy is modeled as the limit on the appropriation of capital by misbehaving politicians.

Suggested Citation

  • Ruiqing Zhong & Weifeng Zhong, 2019. "Political Institutions and the Governmental Burden on Businesses," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(2), pages 332-371.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2018-0012
    DOI: 10.1628/jite-2018-0012
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    References listed on IDEAS

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    1. Chari, V.V. & Kehoe, Patrick J., 1999. "Optimal fiscal and monetary policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745, Elsevier.
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    More about this item

    Keywords

    bureaucracy; taxation; fiscal policy; democracy; autocracy;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H1 - Public Economics - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • P1 - Political Economy and Comparative Economic Systems - - Capitalist Economies

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