Taxes & Welfare: How Institutional Quality Affects Social Policy

Taxes and the welfare state are inextricably linked. Scholars have long noted the tension between citizens’ preferences for lower taxes and more government services. How is social policy designed when tax collection is corrupt and inefficient? To answer this question, we used pair case comparisons relying on a most similar case study design. Specifically, we compare developments in tax reform alongside reforms in education, healthcare, and pensions in 4 post-communist countries, leveraging differences in institutional reforms. Poland and Bulgaria share some post-communist commonalities like EU membership, but critically vary in the institutional reforms like tax collection which shape social policy reform. Likewise, Macedonia and Croatia share post-Yugoslav commonalities but vary on institutional reform. We then turn to a cross-national dataset of post-communist countries to assess the generalizability of our findings. Our findings have significant implications for transitional countries. We find that poor tax reform significantly hampers policymaking in a variety of ways.