“Politicians Have an Incentive to Conceal Tax Incidence”

Bizarre and weird, but fascinating. These are the words Michael Keen uses to describe the history of taxation, which he wrote down in cooperation with Professor Joel Slemrod in their book “Rebellion, Rascals, and Revenue: Tax Follies and Wisdom Through the Ages”. On 27 July, ZEW President Professor Achim Wambach welcomed the two authors Keen, deputy director of the Fiscal Affairs Department of the International Monetary Fund (IMF), and Slemrod, professor of business economics and public policy at the University of Michigan, to the virtual #ZEWBookTalk organised by ZEW Mannheim and MannheimTaxation. In addition, they addressed current developments.

At the beginning of the #ZEWBookTalk Michael Keen said that taxes have rarely sparked a war. However, after Chilean companies had started mining valuable nitrates at the Bolivian Atacama Desert, Bolivia continuously raised export taxes. This let to a conflict which lasted years and eventually triggered the so-called War of the Pacific. As a result Bolivia became landlocked. “Taxes sometimes change the map of the world,” said the IMF’s deputy director. The book by the US economists contains many historical anecdotes like the one about the War of the Pacific.

Both in the past and in the present, taxation is a matter of fairness. In the past, some governments developed bizarre methods to achieve fairness through taxation. As an example, Joel Slemrod cited the window tax in 18th and 19th century England and France. More windows meant higher taxes. The idea behind it was the following: The number of windows in a house correlated strongly with its size and the wealth of its owners. However, the window tax led to the number of windows being reduced and rooms being bricked up, Slemrod said. Another important aspect of taxation is that it elicits a behavioural response.