Studies of the welfare state in democratic capitalist systems rarely explore comprehensively the political, economic, and institutional linkages between social programs and tax structure; analysts of tax policy rarely explicate systematically the political consequences of tax structure for social benefit programs. Junko Kato's new book is an engaging, albeit incomplete, effort to fill this void.

Kato's work is motivated by the observation that the most expansive and durable systems of social protection rely disproportionately on regressive general consumption taxation. Specifically, the author argues that in nations where the general consumption tax, that is, the Value Added Tax (VAT) was enacted prior to post-1973 economic and public fiscal crises, policymakers effectively institutionalized significant revenue-raising capacity. The welfare state in these polities expanded during the latter days of the golden age and proved durable against more recent welfare retrenchment pressures. On the other hand, in polities that adopted the VAT after the onset of economic and fiscal stress, the general consumption tax encountered significant political resistance and was never institutionalized to the degree necessary to provide significant revenue-raising strength. That is, tax policy exhibited significant path dependency. In late-adopting systems, pressures to cut (significant) income tax burdens and balance budgets commonly led to substantial rollbacks in the welfare state.

The author utilizes both quantitative analysis and comparative case studies to assess the basic elements of her argument. With respect to the former, she offers a pooled time-series cross-section analysis of data from 18 nations for the period 1965 to 1990, gathered by the Organization for Economic Cooperation and Development, to assess the proposition that welfare state expansion is associated with greater reliance on regressive general consumption taxation. The bulk of the analysis, however, consists of case studies of the forces that shape the adoption of the VAT and, in turn, its impacts on the welfare state. Chapter 2 explores regressive taxation and the welfare state dynamics in those politics that enacted the VAT prior to a general economic and fiscal crisis (i.e., France, Sweden, and the United Kingdom). Chapter 3 offers paired comparisons of VAT reform in late (or non-) adopters: the United States and Canada, and Australia and New Zealand. Chapter 4 places consumption tax politics in Japan in comparative context. Chapter 5 summarizes and concludes.

As to findings, both quantitative and qualitative analyses lend strong support to the notion that increasing reliance on the regressive general consumption tax is a product of welfare expansion. Yet the case studies of France, Sweden, and the United Kingdom demonstrate that the proximate forces shaping enactment of the VAT in early adopters were quite varied. In Sweden, technical experts and Social Democratic Party politicians recognized the significant revenue-raising capacity of the (clearly regressive) VAT and its future role in expanding the universal welfare state to middle-class constituencies and funding redistributive social programs generally. In France, on the other hand, the VAT was introduced under the mistaken belief that technical adjustments might make it a progressive source of funding for the expansive French public sector. In the United Kingdom, the adoption of the VAT in the early 1970s was largely a function of British membership in the European Economic Community.

Qualitative case-study analysis (Chapters 3 and 4) largely confirms that the introduction of the general consumption tax in the post-1973 era generated dramatic political opposition. In Canada, Japan, and Australia, direct political opposition to the VAT, as well as structural constraints attendant on smaller welfare states, led to the adoption and maintenance of lower consumption tax rates; the establishment of the VAT also significantly weakened or contributed to the removal of extant party governments. The only exception to this pattern is New Zealand, where significant economic crisis, notable income tax reductions, and astute tax reform strategies contributed to minimal political resistance.

Despite the contributions Kato makes through the exposition of this counterintuitive argument and the finely grained, comparative case analysis of VAT adoption, Regressive Taxation and the Welfare State suffers from several problems. First, the quantitative analysis is notably underdeveloped; it addresses only the general linear relationship between social welfare expenditure and the relative weight of consumption taxes in national product. Readers would be much better served by 1) a more rigorous analysis of policy diffusion (e.g., event history analysis) and 2) an expanded quantitative analysis of the role of regressive taxation in bolstering the welfare state during the post-1973 era of retrenchment. Specifically, many readers will wish to see a much more sophisticated assessment of the independent role of the relative institutionalization, reliance, and magnitude of consumption taxes on late-1970s to late-1990s retrenchment of social protection. And most readers will be interested in the relative social policy impacts of tax structure in comparison to the social policy effects of the institutions of alternative political economic models, as well as other forces established in the literature as determinants of contemporary welfare state trajectories.

In much the same way, the core case-study chapters could be bolstered by a more comprehensive and rigorous assessment of the role of regressive taxation in mitigating welfare retrenchment. The most developed portion of these qualitative analyses focuses on the immediate political and economic forces surrounding adoption of the VAT. There is relatively little detailed analysis of the manifold retrenchment efforts in the focal countries and the impact of tax structure in influencing reform outcomes. In light of the absence of similarly focused quantitative analysis, a significant component of the author's argument remains untested.

Finally, Kato might have been more thorough in addressing several obvious theoretical questions. First, while the argument about dynamics of diffusion of the VAT to late adopters is clear, she does not provide much of a theoretical explanation for the timing and form of general consumption tax enactment for the early adopters. Beyond the general proposition that these were all large welfare states in the making, we have little theoretical basis for understanding why some countries embraced general consumption taxation in the early 1950s and others in the late 1960s. The case studies themselves undercut the hypothesis that recent or planned welfare state expansion was a systematic and direct cause of enactment of the VAT. Second, and related to this criticism, the author misses a clear opportunity to more fully theorize the relationship between post–World War II political economic structures and institutions and their historical evolution, on the one hand, and the structure of tax extraction by the state, on the other. In the end, many readers will not be satisfied with the answers about the origins and independent social policy effects of tax structure.

In spite of these significant shortcomings, this book should be read by welfare state and tax policy specialists. It offers an interesting perspective on the funding basis of the welfare state and some excellent comparative qualitative analysis of tax policy change.