Redistributive Taxation, Public Expenditure, and Size of Governent
AbstractWe introduce a model of redistributive income taxation and public expenditure. This joint treatment permits analyzing the interdependencies between the two policies: one cannot be chosen independently of the other. Empirical evidence reveals that partisan confrontation essentially falls on expenditure policies rather than on income taxation. We examine the case in which the expenditure policy (or the size of government) is chosen by majority voting and income taxation is consistently adjusted. This adjustment consists of designing the income tax schedule that, given the expenditure policy, achieves consensus among the population. The model determines the consensus in- come tax schedule, the composition of public expenditure and the size of government. The main results are that inequality is negatively related to the size of government and to the pro-rich bias in public expenditure, and positively or negatively related to the marginal income tax, depending on substitutability between government supplied and market goods. These implications are validated using OECD data.
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Bibliographic InfoPaper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 799.09.
Date of creation: 14 Dec 2009
Date of revision:
Government policy; Income Taxation; Public Expenditure.;
Other versions of this item:
- Sanghamitra Bandyopadhyay & Joan Esteban, 2009. "Redistributive Taxation, Public Expenditure, and Size of Governent," Working Papers 416, Barcelona Graduate School of Economics.
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
- NEP-CDM-2009-12-19 (Collective Decision-Making)
- NEP-PBE-2009-12-19 (Public Economics)
- NEP-PUB-2009-12-19 (Public Finance)
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