How Do Governments Respond to Business Demands for Tax Cuts: An analysis of Corporate and Inheritance Tax Reforms in Austria and Sweden

Capital mobility and new political strategies of organized business have increased the structural and instrumental power of business, respectively. We research how governments respond to demands from business for tax cuts in the context of rising business power, using case studies of reforms of corporate taxes and inheritance taxes in Austria and Sweden, which results in four cases. Government responses varied between the two policy fields and compliance with business demands went further on inheritance taxes than on corporate taxes. We argue that this variation in government responses is the result of governments aiming to balance three potentially conflicting goals: attracting investments through business-friendly policies, maintaining a high level of tax revenues, and maintaining electoral popularity. The in-tensity of these goal conflicts varies across policy fields and policy measures, and we hypothesize that governments will pursue reforms that mitigate these conflicts. Business-friendly tax cuts thus go furthest where the fiscal implications are limited and business policy demands align with middle class preferences. We emphasize in conclusion that business-friendly tax cuts are not merely a response to the structural power of business but are shaped just as much by fiscal and electoral considerations. However, government efforts to reconcile the three policy goals under conditions of heightened business power meant a sacrifice of redistributive goals in tax policy