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Voting over taxes: the case of tax evasion

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  • Christian Traxler

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Abstract

This paper studies majority voting on taxes when tax evasion is possible. We characterize the voting equilibrium where the agent with median taxed income is pivotal. Since the ranking of true incomes does not necessarily correspond to the ranking of taxed incomes, the decisive voter can differ from the median income receiver. In this case, we find unconventional patterns of redistribution, e.g. from the middle class to the poor and the rich. Furthermore, we show that majority voting can lead to an inefficiently low level of taxation – despite a right-skewed income distribution. Hence, the classical over-provision result might turn around, once tax evasion is taken into account.

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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 140 (2009)
Issue (Month): 1 (July)
Pages: 43-58

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Handle: RePEc:kap:pubcho:v:140:y:2009:i:1:p:43-58

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Web page: http://www.springerlink.com/link.asp?id=100332

Related research

Keywords: Majority voting; Tax evasion; Redistribution; H26; D72;

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  1. Cowell, F A, 1990. "Tax Sheltering and the Cost of Evasion," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 231-43, January.
  2. Juin-jen Chang & Ching-chong Lai, 2004. "Collaborative tax evasion and social norms: why deterrence does not work," Oxford Economic Papers, Oxford University Press, vol. 56(2), pages 344-368, April.
  3. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  4. Bruno S. Frey & Lars P. Feld, 2002. "Deterrence and Morale in Taxation: An Empirical Analysis," CESifo Working Paper Series 760, CESifo Group Munich.
  5. Joel Slemrod, 1998. "A General Model of the Behavioral Response to Taxation," NBER Working Papers 6582, National Bureau of Economic Research, Inc.
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  7. Sven Stö & Christian Traxler, 2005. "Tax Evasion and Auditing in a Federal Economy," International Tax and Public Finance, Springer, vol. 12(4), pages 515-531, August.
  8. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  9. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
  10. Carlo V Fiorio & Francesco D'Amuri, 2005. "Workers' Tax Evasion in Italy," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 64(2-3), pages 247-270, November.
  11. Tedds, Lindsay, 2007. "Estimating the Income Reporting Function for the Self-Employed," MPRA Paper 4212, University Library of Munich, Germany.
  12. Epple, Dennis & Romano, Richard E., 1996. "Ends against the middle: Determining public service provision when there are private alternatives," Journal of Public Economics, Elsevier, vol. 62(3), pages 297-325, November.
  13. Slemrod,Joel, 1994. "Tax Progressivity and Income Inequality," Cambridge Books, Cambridge University Press, number 9780521465434, April.
  14. Gouveia, Miguel, 1997. " Majority Rule and the Public Provision of a Private Good," Public Choice, Springer, vol. 93(3-4), pages 221-44, December.
  15. Rudiger Ahrend & Carlos Winograd, 2006. "The Political Economy of Mass Privatisation and Imperfect Taxation: Winners and Losers," Documents de recherche 06-02, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  16. Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February.
  17. Klarita G�rxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, 09.
  18. Tyran, Jean-Robert & Sausgruber, Rupert, 2006. "A little fairness may induce a lot of redistribution in democracy," European Economic Review, Elsevier, vol. 50(2), pages 469-485, February.
  19. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
  20. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
  21. Roine, Jesper, 2003. "Voting over tax schedules in the presence of tax avoidance," Working Paper Series in Economics and Finance 529, Stockholm School of Economics.
  22. Kopczuk, Wojciech, 2001. "Redistribution when avoidance behavior is heterogeneous," Journal of Public Economics, Elsevier, vol. 81(1), pages 51-71, July.
  23. Jonathan S. Feinstein, 1991. "An Econometric Analysis of Income Tax Evasion and its Detection," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 14-35, Spring.
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Citations

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Cited by:
  1. Laszlo Goerke, 2012. "The Optimal Structure of Commodity Taxation in a Monopoly with Tax Avoidance or Evasion," Public Finance Review, , vol. 40(4), pages 519-536, July.
  2. Adam, Antonis & Kammas, Pantelis, 2012. "(Tax evasion) power to the people: does "early democratization" increase the size of the informal sector?," MPRA Paper 43343, University Library of Munich, Germany.
  3. Bethencourt, Carlos & Kunze, Lars, 2013. "The political economics of redistribution, inequality and tax avoidance," MPRA Paper 51127, University Library of Munich, Germany.
  4. Weinreich, Daniel, 2013. "Fair tax evasion and majority voting over redistributive taxation," MPRA Paper 48919, University Library of Munich, Germany.
  5. Rainald Borck, 2009. "Voting on redistribution with tax evasion," Social Choice and Welfare, Springer, vol. 32(3), pages 439-454, March.
  6. Salvatore Barbaro & Jens Suedekum, 2009. "Voting on income tax exemptions," Public Choice, Springer, vol. 138(1), pages 239-253, January.
  7. Besfamille, Martin & De Donder, Philippe & Lozachmeur, Jean-Marie, 2009. "The Political Economy of the (Weak) Enforcement of Sales Tax," CEPR Discussion Papers 7108, C.E.P.R. Discussion Papers.
  8. Loukas Balafoutas, 2009. "How much income redistribution? An explanation based on vote-buying and corruption," Working Papers 2009-29, Faculty of Economics and Statistics, University of Innsbruck.
  9. Traxler, Christian, 2012. "Majority voting and the welfare implications of tax avoidance," Journal of Public Economics, Elsevier, vol. 96(1), pages 1-9.

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