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However, consistent and comprehensive data on revenue from VAT are not available among the third wave countries. We thus construct variables other than the revenue one. A uniform effect of VAT introduction is embodied in the VAT introduction variable, which is coded 1 in the subsequent years after the introduction of VAT and 0 otherwise. The ln VAT cumulative effect variable is calculated by taking the logarithm of the number of years after the introduction of VAT for each country 33 33 We code 0 if a country does not introduce VAT.

The results remain largely similar even without using the log transformation. The year of introduction is based on Bird and Gendron To examine the effects of other tax variables on democracy, the analysis also includes the IMF income tax and IMF tax revenue variables in some specifications, which represent general revenues from income tax and taxation, respectively, as proportions of gross domestic product GDP. Each dot represents a country's Polity score at a given year. Although our analysis focuses on VAT, we argue that neither its introduction nor its mere presence automatically lead to democratisation without political processes.

Instead, we argue that VAT is more likely to result in democratisation when the imposition of the new levy is politicised and increases the possibility of collective action. To take these effects into consideration, we should employ direct measures capturing politicization and collective action against VAT. However, there are no available data to represent the explicit outbreak of collective action against VAT or implicitly associated with it.

Thus, to capture VAT's politicisation processes, our quantitative analysis compares the effects of collective action on democratisation with and without the presence of VAT. We expect that because VAT increases grievances among the public and motivates citizens politically, collective action is more likely to increase the likelihood of democracy with the VAT than without it. Because as already demonstrated, outbreaks of riots have often been observed with the introduction of VAT, for specific measures of collective action we use the widely employed data on riots as a proxy and create a Riot variable which takes the logarithm of the number of riots.

We then construct an interaction term between collective action and our VAT variables and examine the process of politicisation that intervenes in the VAT—democratisation linkage. The analysis also includes factors that the existing literature considers to facilitate contemporary democratisation and examine whether taxation has its own role in contemporary democratisation after controlling for these other correlates. The Resource variable represents a country's resource rent, which takes the logarithm of the division of the value of a country's annual oil and natural gas production by its population.

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We also include the Resource dependence Dunning instead of our Resource variable in some of the specifications, but the significant levels remain largely the same not reported. The Resource dependence and Resource variables are obtained to divide the value of a country's annual oil and natural gas production, respectively, by the country's GDP and its population. High capital shares mean a higher degree of inequality because a large portion of the value added in production accrues to the capital owners rather than to the labour class.

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The recent literature has used this variable rather than Gini coefficients, which have a large number of missing data and inconsistent data sources Dunning ; Houle We follow Houle and Ross , and include the Islam variable, but the results do not change without the variable. All the independent variables except the time counter are lagged one year. For example, it is possible that countries with abundant natural resources tend not to introduce VAT because the resources allow them to survive without tax revenues. To reduce the reverse causality concern, we excluded countries in the first and second waves of democratisation that introduced VAT after democratic consolidation.

The average treatment effect of VAT on democracy is eventually estimated with the weights obtained in the first step. Further, the analysis also controls for all the controls used in the first step to account for unexplained variance in the dependent variable. Before we present analyses that control for other factors, an initial exploration provides the first piece of evidence, although preliminary, about the contemporary, taxation—democratisation linkage.

Among the third wave democratisers, three southern European counties and ten former socialist countries introduced VAT after the regime transition.

On average, countries that introduced VAT have a Polity score of 5. The positive relationship also holds among VAT introducers, where an increase by 6. This implies that countries are more likely to experience a regime transition toward democracy with VAT than without it. Among 15 developing countries that institutionalised VAT more than 25 years ago, the regimes generally began to diverge from an autocracy towards a transition to a democracy defined here as an increase in their Polity score above six after approximately eight years.

The democratisation trend continued until nearly 30 years after the introduction of VAT, and every country except one achieved democratic consolidation after 30 years. Overall, the analyses confirm both the uniform and cumulative effects of the presence of taxation on democratisation. But a great number of missing values of the VAT revenue may also bias the result. From this, we conclude that two dependent variables of our interest, ln VAT cumulative effect and VAT introduction , have positive and statistically significant impacts on the likelihood of democracy.

The calculation suggests that while holding all other covariates at sample means, if the number of years since a country has introduced the VAT increases from ten to twenty years, the probability of democracy in a given year for an observation increases by about Among factors that are considered important in the existing literature on democratisation, the Resource variable shows significant results in fixed effect models, but it is insignificant in random effect models. The Islam variable, which is correlated with oil countries in the Middle East Ross , , is negatively associated with democracy in random effect models.

The Polity diffusion effect variable shows a significant, positive result across all the models, indicating a domino effect of democracy. Finally, the ln Year in autocracy variable shows a negative result across all the models. As a robustness check, we next examine alternative specifications with additional variables that may mitigate the effect of the VAT on democracy. In particular, because higher total tax revenue enables a state to finance specific social programmes such as education and welfare, this increase in the tax revenue in general may contribute to democratisation.

We also examine factors that represent the contexts of the third wave democratisation that may affect a relationship between VAT and democratisation — that is, the fall of communist governments in Europe, economic liberalisation and economic development. To deal with the problem, we dropped the Eastern European countries and conducted an analysis using a truncated sample.

The taxation—democratisation linkage may also be explained by economic liberalisation in globalised markets, not specifically by VAT. As already discussed, VAT was sometimes introduced as a part of economic liberalisation reform. We examine this possibility using the Trade openness variable that captures the effect of liberalisation reform. However, because of a large number of missing values, the results did not converge.


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Overall, the results confirm that at least these factors do not interfere with the relationship between VAT and democracy, providing more support for our argument. We adjust the imbalances in all the observable variables that may plausibly explain the relationship between VAT and the likelihood of democracy.

Thus, we use only the VAT introduction variable in the entropy balancing analysis. Levels of government debt may also influence a decision to adopt VAT, but the inclusion of such a variable does not change our main findings not reported.

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Because the Riot variable is insignificant, the result suggests that riots contribute to the likelihood of democracy only in countries that introduce VAT. More specifically, riots have a positive impact on democracy only with the presence of VAT. The results with the interaction variable themselves do not show that VAT induces riots.

To provide further evidence for this point, we report the result of a model with riots as dependent variable in model III. The analysis confirms that riots are more likely to occur in countries with VAT than without. Taken together, the results corroborate our argument about the linkage between VAT and contemporary democratisation.

The shaded bars indicate the number of observations. Finally, we highlight our argument about the contemporary taxation—democratisation linkage by demonstrating how it is related to the recent literature.

In particular, we believe our finding contributes to the discussion about other correlates of democratisation i. These apparently contradictory views share an implicit assumption that elites fear redistributive equality under democracy ex ante.

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Thus, elites who are enjoying a high level of wealth under an autocratic system tend to repress the demands of citizens for representation. However, recent studies do not necessarily endorse the role of distributive conflict over equality in democratisation Timmons a , b. Houle confirms the negative effect of the level of inequality on consolidation but not on democratisation per se. The recent literature also goes beyond the conventional explanation that regards the evolution of income taxation as an equalisation process during democratisation.

Haggard and Kaufman raise doubts about an attempt to apply an overarching theory of equality to different waves of democratisation. More importantly, Ansell and Samuels shift the focal point of democratisation from mass protests for equal redistribution to resistance to the financial exploitation of the autocratic state by the enfranchised social classes. Third wave democratisation is no exception. Ansell and Samuels argue that autocratic extraction of revenue resulted in resistance for the right of property protection and, thus, the demand for representation.

Whereas the previous literature did not directly examine the state's extraction of tax revenue, our study factors in VAT as a modern form of taxation for contemporary democratisers and provides a further exploration for this renewed interest in the financial expropriation of the state. The rentier states can afford to finance public spending with resource rents without taxing their citizens Beblawi ; Herb ; Mahdavy Whereas resource wealth enables rulers to avoid taxation and contributes to stabilising autocracies Morrison , 57 57 Morrison contends that taxation generally destabilises all political regimes.

But, as we explained above using the tax literature, many developing economies prefer to adopt VAT because it allows them to adjust to global economies but not necessarily to raise revenue. The contemporary taxation—democratisation linkage emerged from external circumstances that are peculiar to the third wave of democratisation. Facing pressure for economic liberalisation from globalised markets, many developing economies have implemented a modern tax system — VAT — which was already devised and implemented in developed countries.

Tourism, already down from totals, fell by two-thirds in from the preceding year, posting its lowest number of visitors in a decade. The comparative magnitude of this impact is illustrated by the fact that, in , of countries ranked according to the contribution tourism made to GDP, Egypt was placed 35 th , while its ranking with regard to prospects for growth in was th World Tourism and Travel Council, Gas exports dried up shortly after the January 25 Revolution as the growth of domestic consumption overtook production.

Stopgap measures allowing energy-intensive industries to import their own gas and to construct coal-fired power stations were approved, but the attractiveness of Egypt as a producer necessarily declined as energy costs escalated.