Taxation improves governance: but which taxes matter and which governance dimensions improve? | 국외연구자료

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Taxation improves governance: but which taxes matter and which governance dimensions improve?

WIDER

2026.08.04

A body of influential research indicates that taxation may produce a ‘governance dividend’, by enhancing state accountability, institutional quality, and public service provision. Indeed, developing effective tax systems―essential for financing development goals as recognised in SDG 17: Partnerships for the goals―is an important part of what the governments of lower income economies try to do. But do effective tax systems also lead to governance improvements?

[Findings]
- The governance dividend differs by tax base: taxes on capital may lead to different governance outcomes than taxes on labour
- Stronger rule of law is significantly associated with higher effective taxation on capital
- Improvements in egalitarian-democratic governance is associated with labour taxation
- We find no discernible effects on other dimensions of governance quality

[Implications]
- In addition to providing stable resources to finance the development goals, taxation can improve governance quality too
- Improvements in governance quality can vary depending on which factor of production, labour or capital, is taxed
- Align taxes on capital and labour to governance goals

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