Democracies in Peril

Globalization is triggering a 'revenue shock' in developing economies. International trade taxes - once the primary source of government revenue - have been cut drastically in response to trade liberalization. Bastiaens and Rudra make the novel argument that regime type is a major determinant of revenue-raising capacity once free trade policies have been adopted. Specifically, policymakers in democracies confront greater challenges than their authoritarian counterparts when implementing tax reforms to offset liberalization's revenue shocks. The repercussions are significant: while the poor bear the brunt of this revenue shortfall in democracies, authoritarian regimes are better-off overall. Paradoxically, then, citizens of democracies suffer precisely because their freer political culture constrains governmental ability to tax and redistribute under globalization. This important contribution on the battle between open societies and the ability of governments to help their people prosper under globalization is essential reading for students and scholars of political economy, development studies and comparative politics.

'This book identifies a major empirical puzzle and then provides a novel and compelling explanation for it. Why has tax collection dropped in the developing world recently as globalization has progressed? And why has it dropped most for developing democracies? Trade liberalization created a revenue shock for these governments: the autocratic regimes surprisingly have been best able to find ways to compensate for this, while developing democracies have not. The book issues an important call for policy makers to address this problem before support for globalization and perhaps even democracy are eroded. Helen V. Milner, B. C. Forbes Professor of Politics and International Affairs, Princeton University, New Jersey, and Director, Niehaus Center for Globalization and Governance, Woodrow Wilson School, Bastiaens and Rudra uncover an important and sobering fact: compared to liberal authoritarian regimes, developing democracies that liberalize trade cannot offset revenue losses from lower tariffs. They face a democratic dilemma: apparently, public services must be sacrificed to secure the benefits of openness. The authors help us understand why, and encourage us to probe more deeply the benefits of openness in democracies with weak state institutions. Philip Keefer, Principal Economic Advisor, Institutions for Development, Inter-American Development Bank, 'Trade liberalization in developing countries created a massive shortfall of revenue by cutting trade taxes. Bastiaens and Rudra argue that authoritarian regimes rather than democracies succeeded in using coercion and tax-for-policy bargains to raise revenue. Democracies are less able to use coercion and often find themselves in low-revenue traps in which citizens will not voluntarily comply with tax policies because they do not think they will see policy benefits and governments do not have the revenue needed to provide those benefits. It is a sobering but insightful description of how politics shape state capacity to provide public goods that advance human welfare and development - a terrific and important book.' Scheve Scheve, Stanford University, California, '… exceptional, theoretically rich, and empirically dense work … a must read for scholars and students working on questions at the core of both political economy research and democratic theory.' Sarah Berens, Perspectives on Politics

Ida Bastiaens is Assistant Professor of Political Science at Fordham University, New York. Her research analyzes questions on the political determinants of integration in the global economy, the impact of international integration on fiscal and social welfare in developing countries, and citizen preferences for global capital flows. She has published in International Interactions, the Journal of European Public Policy, and Review of International Political Economy. Nita Rudra is Professor of Government at Georgetown University, Washington DC. Her research focuses on the problems of economic development, democracy, globalization, inequality, and redistribution in the developing world. Her work appears in British Journal of Political Science, the Journal of Politics, American Journal of Political Science, Comparative Political Studies, and International Organization.