Social Democracy Constrained: Indirect Taxation in Industrialized Democracies

Abstract

The determinants of the welfare state have received a great deal of attention in the comparative political economy literature. An analysis of the role that indirect taxation plays in the politics of advanced industrial societies is, however, missing. This article demonstrates that a full understanding of the links between redistribution, social democracy and corporatism is impossible without a closer look at indirect taxation. Conventional wisdom is questioned and it is shown that social democratic governments in corporatist environments find themselves in a paradoxical situation. They need to support the welfare state by relying upon a fundamentally regressive policy instrument: indirect taxation. It is also shown that social democratic governments can minimize the use of consumption taxes as part of their redistributive strategy only in non-corporatist settings. In exploring these issues, this article illuminates alternative routes for the pursuit of equality in a context of declining corporatist arrangements.