DEMOCRACY AND TAXATION IN GREECE: A long history of rural favouritism

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Date:
30 Mar 2017

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Greece established universal male suffrage in 1864, while it was still a developing pure agrarian economy, stimulating a shift in the implemented fiscal policy in favour of the rural population. In contrast, in more industrialised European economies, democratisation revealed the political preferences of a more urbanised electorate – mostly consisting of workers and middle class capitalists – leading to changes in fiscal policy that deviate significantly to those observed in an agrarian economy. 

These are the conclusions of new research by Pantelis Kammas and Vassilis Sarantides, to be presented at the Economic History Society’s 2017 annual conference. Their study highlights the importance of economic development in the relationship between democracy and taxation, focusing mainly on the case of Greece during the nineteenth and early twentieth century. 

Building on a unique tax dataset that contains 13 different tax categories of the newborn Greek state during the period 1833-1933, the results indicate that the extension of the voting franchise in 1864 did not affect the size of the government – but it did change the structure of taxation in favour of the peasantry. 

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The authors explain the findings of their study in more detail: 

The main concern of the governing authorities in the agrarian newborn Greek state of the nineteenth century was the legitimisation of their authority. On this basis, a number of economic benefits through tax (and other) policies were provided to the rural population that became politically powerful after 1864, the date that voting rights were granted to all adult males. 

In that way, authorities aimed to ensure a minimum level of social consensus and to convince the citizens of the young Greek state that the public demands of the war of independence against the Ottoman empire – ‘social justice’, ‘democracy’ and ‘equality of political rights’ – would be satisfied. 

In our research, we highlight the importance of economic development in the relationship between democracy and taxation, focusing mainly in the case of Greece during the nineteenth and early twentieth century. Notably, Greece established universal male suffrage in 1864 while it was still a developing, pure agrarian economy with 76% of the population in the agricultural sector. In contrast with Greece, other democratic European countries had significantly narrower agricultural sectors in the nineteenth century – the majority of them at a level below 40% of the total working population. 

Building on a unique tax dataset that contains 13 different tax categories of the newborn Greek state during the period 1833-1933, our results conclude that the extension of the voting franchise in 1864 did not affect the size of the government – but it did change the structure of taxation in favour of the rural population. 

Universal male suffrage was accompanied by a long-run reduction in the percentage of rural (for example, taxes on land) to total taxes by 8.25% - the most important direct tax of this period. This reduction was balanced by increases in indirect taxes, causing a significant reduction of the ratio between direct and indirect taxes but leaving the overall level of taxation constant over time. 

We interpret our empirical findings in terms of a political economy motivation. In particular, the Greek governments changed the composition of taxation, reducing rural taxes to satisfy the large majority of the electorate who were poor peasants and farmers. Amazingly some basic characteristics of the current tax system in Greece seem to have deep historical roots. One is the low tax burden that has fallen on the incomes of the agricultural population throughout the history of the Greek state. This is because governing authorities always keep an eye on the welfare of this politically powerful group to gain support. Another deep-rooted characteristic is the significant reliance on indirect versus direct taxes, which can be attributed to analogous political economy reasons.

In turn, we compare our findings for Greece with that for a sample of 12 West European countries that were substantially more developed upon democratisation. Our analysis suggests that in more industrialised European economies, democratisation revealed the political preferences of a more urbanised electorate – mostly consisting of workers and middle class capitalists – leading to a different pattern of ‘reshapement’ of the tax system. 

This is consistent with our theoretical priors that the level of development, and the consequent structure of the economy, will result in a differentiated effect of democratisation on fiscal policy. 

ENDS 

Pantelis Kammas (University of Ioannina) and Vassilis Sarantides (University of Sheffield) 

Contact:
Vassilis Sarantides
Tel: +44 (0)7910376505
Email: v.sarantides@sheffield.ac.uk

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