Explaining observed differences in the use of taxation and in the structure of fiscal systems is an important task for political economy. Taxation lies at the heart of political power and is crucial to the operation of the public sector, thus providing a test case for judging the relevance of collective decision models. At the same time, empirical research is facilitated by the existence of excellent quantitative information on government revenues, including data of both a cross-sectional and a historical nature.

In the preceding chapter we showed how applied equilibrium modeling could be used to gain a better empirical understanding of fiscal history. This chapter sets the stage for statistical modeling. We derive a general set of estimating equations that are consistent with the framework we have developed, and we use it for a discussion of the issues that arise when making the transition from theory to statistical work. The specific nature of the research presented in the following two chapters is introduced, and previous empirical work on the political economy of tax structure is reviewed.