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Political institutions and tax rate initiatives

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  • Raúl Alberto Ponce Rodríguez

    ()
    (Profesor de Economía de la Universidad Autónoma de Ciudad Juárez y Asistente de Investigación de Georgia State University.)

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    Abstract

    In a model of a representative democracy, we incorporate into the analysis of tax design the constitutional provision that allows voters to propose tax initiatives. In this paper, we present a theory of tax substitution as the rationale for a tax rate limit (TRL) initiative. In our model the tax system at the status quo is determined by the electoral competition between parties. This political institution aggregates the voters’ preferences for tax policy according to the voters’ marginal proportion of the expected vote that different coalition of voters can deliver in the election. The approval of a TRL, however, depends on the majority rule, and it aggregates the preferences of the median voter of tax initiatives. Thus, a TRL is the result of two political institutions with different mechanisms to aggregate the preferences of voters. Moreover, our paper distinguishes the role of perfect and imperfect information on the distribution of voters´ preferences for tax systems in approving a tax initiative. In this paper we identify conditions on the distribution of preferences and income of the electorate and the median voter that guarantee the approval (rejection) of tax initiatives.

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    Bibliographic Info

    Article provided by Universidad Autonoma de Nuevo Leon, Facultad de Economia in its journal Ensayos Revista de Economia.

    Volume (Year): XXVIII (2009)
    Issue (Month): 2 (November)
    Pages: 65-94

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    Handle: RePEc:ere:journl:v:xxviii:y:2009:i:2:p:65-94

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    Related research

    Keywords: Taxation; Tax Limitations; Redistributive Effects; Structure and Scope of Government;

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    References

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    1. Eytan Sheshinski, 2006. "Optimum Commodity Taxation in Pooling Equilibria," CESifo Working Paper Series 1815, CESifo Group Munich.
    2. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
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    8. Sheshinski, Eytan, 2006. "Optimum Commodity Taxation in Pooling Equilibria," MPRA Paper 54717, University Library of Munich, Germany, revised 2007.
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    12. Preston, Anne E. & Ichniowski, Casey, 1991. "A National Perspective on the Nature and Effects of the Local Property Tax Revolt, 1976-1986," National Tax Journal, National Tax Association, vol. 44(2), pages 123-45, June.
    13. Shapiro, Perry & Sonstelie, Jon, 1982. "Did Proposition 13 Slay Leviathan?," American Economic Review, American Economic Association, vol. 72(2), pages 184-90, May.
    14. Shadbegian, Ronald J., 1999. "The Effect of Tax and Expenditure Limitations on the Revenue Structure of Local Government, 1962-87," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 221-38, June.
    15. Dye, Richard F. & McGuire, Therese J., 1997. "The effect of property tax limitation measures on local government fiscal behavior," Journal of Public Economics, Elsevier, vol. 66(3), pages 469-487, December.
    16. Hettich,Walter & Winer,Stanley L., 2005. "Democratic Choice and Taxation," Cambridge Books, Cambridge University Press, number 9780521021807, October.
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