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A Politico-Economic Model of Public Expenditure and Income Taxation

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  • Joan-Maria Esteban
  • Laura Mayoral

Abstract

We model the political process as consisting of voting on the issue considered salient, public expenditure, with a subsequent consensus over size of government and income taxation. We prove that for each majoritarian choice there is a unique consensus policy on progressivity and government size. We empirically validate the implication that the sign of the relationship between inequality and progressivity chosen by the median voter is conditional on the degree of substitutability between government and market supplied goods. We also obtain that this substitutability has a negative impact on the negative marginal effect of inequality on the size of government.

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  • Joan-Maria Esteban & Laura Mayoral, 2013. "A Politico-Economic Model of Public Expenditure and Income Taxation," Working Papers 743, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:743
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    References listed on IDEAS

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    More about this item

    Keywords

    government policy; income taxation; public expenditure;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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