The Relationship between Taxation and Democracy: Panel Causality Analysis for Developing Countries

Abstract

This study analysis the relation between democracy and taxation in the context of developing countries. At the end of empirical analysis covering 60 countries by focusing on the period of 2006-2012, findings showing a two-way causality relation between taxation and democracy were reached. Accordingly, an increase in taxation level affects rule of law, organizational right, freedom of expression and belief positively in the countries analyzed. Briefly, it plays a vital role in the development of democracy by making a contribution to the enhancement of civil liberties. on the other hand, improvements in democratic rights and freedoms increase the number of citizens paying their taxes in full and on time, thus increases taxation level, by strengthening the harmony between citizens and state.