Do gains in political representation sweeten tax reform in China? It depends on who you ask

Abstract

Governments can grant political concessions to induce quasi-voluntary compliance with taxation, yet empirical evidence probing the taxation–representation connection remains inconclusive. We contend that this association remains valid but it is primarily confined to business elites in nondemocratic regimes because the same wealth that exposes them to state predation also incentivizes them to endorse tax policies that offer greater political representation. We test our argument by evaluating preferences for hypothetical tax reforms in separate samples of business elites and ordinary citizens in China. We find that business elites show stronger preference than nonelites for tax policies that include advances in political representation. We explore various mechanisms for our results and find support for government credibility, tax ownership, and tax salience considerations.