Do Voters Reward and Punish Governments for Changes in Income Taxes?

Abstract

This article examines whether governments experience electoral sanctions for changes in income tax rates. The article asks two questions. First, do governments gain votes after lowering taxes and lose votes after raising taxes? Second, is this effect conditional upon the ideology of the government, with right-wing governments being particularly sensitive to changes in tax rates? An analysis of national elections between 1990 and 2006 in 19 countries finds evidence that governing parties that raise (lower) taxes lose (gain) votes in subsequent elections. Further analyses are suggestive that right-wing incumbents are more strongly affected by changes in basic income tax levels than left-wing and centrist governing parties. However, these findings hold only when measuring changes in income tax brackets that broadly affect the electorate, suggesting a certain degree of economic rationality.