HOW GOVERNMENTS RESPOND TO BUSINESS DEMANDS FOR TAX CUTS: AN ANALYSIS OF CORPORATE AND INHERITANCE TAX REFORMS IN AUSTRIA AND SWEDEN. CES Open Forum Series 2018-2019

Klitgaard, Michael Baggesen and Paster, Thomas (2019) HOW GOVERNMENTS RESPOND TO BUSINESS DEMANDS FOR TAX CUTS: AN ANALYSIS OF CORPORATE AND INHERITANCE TAX REFORMS IN AUSTRIA AND SWEDEN. CES Open Forum Series 2018-2019. [Working Paper]

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Abstract

This paper analyses government responsiveness to business demands for tax cuts, using case studies of reforms of corporate taxes and inheritance taxes in Austria and Sweden. We find a high level of government responsiveness in both policy fields, but much higher responsiveness on inheritance tax. We argue that this difference between the two policy fields is the result of an effort by governments to balance three conflicting goals: (i) attracting investments, (ii) maintaining a high level of tax revenues, (iii) and maintaining electoral popularity. The intensity of these goal conflicts varied between the two policy fields. It was higher on corporate taxation, which led governments to combine cuts to corporate tax with compensatory measures, the abolition of inheritance tax in both countries was not combined with compensatory measures, because goal conflicts were low. We show that differences in the expected electoral and fiscal impacts of reforms explain the different levels of government responsiveness. Government efforts to reconcile the three policy goals under conditions of heightened business power entailed sacrificing redistributive goals that have characterized tax policies in earlier periods. (

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