Does taxation lose its role in contemporary democratisation? State revenue production revisited in the third wave of democratisation

Echoing the call for ‘no taxation without representation’, the development of modern taxation went hand‐in‐hand with Western democratisation. However, taxation appears to have lost its role in the third wave of democratisation. Unlike early democratisers, contemporary autocracies tend to introduce a ready‐made modern taxation system before democratisation. With advice from international organisations, the value added tax (VAT), which mature democracies innovated, has been adopted for economic adjustment and development in globalised markets. Despite these divergences, it is argued in this article that a fundamental relationship between taxation and representation remains. Taxation inherently involves a social contract between revenue‐seeking rulers and citizens, and thus involves their bargaining over representation. Therefore, the production of state revenue intervenes in contemporary democratisation as well. By factoring in the effect of the VAT in 143 developing countries between 1960 and 2007, an entropy‐balancing analysis has confirmed its important role in contemporary democratisation. The taxation‐democratisation linkage has travelled from early to contemporary democratisation.