Autocratic Taxation: Examining the adoption of income taxes in Imperial Germany and Prussia∗ Isabela Maresy and Didac Queraltz August 2014 Abstract This paper investigates the non-democratic advantage in the early adoption of the income tax, one of the most important instruments of taxation both in terms of its extractive capacity and administrative sophistication. We claim that oligarchic elites gain twofold from the adoption of the income tax: first, politically, provided they are capable of linking its adoption to pre-existing electoral provisions that condition tax payments to political rights. The income tax, we argue, might exacerbate inequality in political representation if favor of existing elites. Second, oligarchic elites might win also economically, as the income tax can work as a mechanism of sectoral redistribution from industry to land. We test both hypotheses exploiting within-country variation in Wilhelmine Germany, 1871-1912, where principalities had virtually full power on tax and electoral provisions. We also include a roll call analysis of the 1891 Prussian income tax bill to address the micro-logic of the argument. ∗We thank participants at the 2014 ICOPEAI workshop for comments and suggestions. yColumbia University;
[email protected] zUC3M-Juan March Institute;
[email protected] 1 1 Introduction This paper seeks to contribute to the growing literature examining the origin of extractive institutions, by examining the origin of one of the most important instruments of taxation, the income tax. The income tax occupies a special position in the tool-kit of instruments of revenue generation. In contrast to all previously existing taxes that levied taxes on visible assets, the income tax assessed an abstract concept |that of income| which, in itself, originated from different sources.