Social Contract of Tax in Developing Country Federalism: Cooperation and Competition in India and Brazil.

Taxation depends on governments establishing a basis for collective action to pursue common goals. In part, this depends on a social contract among citizens and between citizens and the state. In federal systems, negotiating social contracts around tax is more complicated, as multiple and overlapping jurisdictions must overcome competition and achieve cooperation and consensus. The current project examines the operation of federalism and taxation in India and Brazil. For a long period in India, cooperative federalism was possible through a powerful central government armed with centralised decision-making institutions and single-party dominance. Over time, these mechanisms for imposing cooperation began to fade, and a more competitive federalism emerged in which state interests and coalitions diverged and the central government lost its ability to impose cooperation. In Brazil, federalism has swung between cooperation and competition, and at different moments party systems and decision-making institutions have operated to facilitate or complicate cooperation around tax. Interestingly, both countries faced fiscal challenges in the 1990s, when expanding tax capacity was necessary. In Brazil, institutions that aided cooperation allowed expanded tax capacity, but the lack of consensus within the party system meant that state interests could not set aside competition. In India, neither decision-making institutions nor the party system were propitious for cooperation around tax, and adjustment has been avoided. [ABSTRACT FROM AUTHOR]