Tax Structure and Government Expenditures under Tax Equity Norms
AbstractWe augment a standard tax model by concerns about tax equity: people get upset when labour is taxed more heavily than capital. Even the slightest concern for tax equity invalidates the common recommendation for small open economies that capital should remain tax-exempt. This holds for exogenous as well as for endogenous government expenditures and irrespective of whether concerns with tax equity only cause emotional discomfort or also impact on work incentives. If concerns with tax equity get more intense, the economy may choose higher taxes on labour and move to the downward sloped part of its Laffer curve. For endogenous government spending, stronger concerns with tax equity may call for a larger size of the public sector.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3205.
Date of creation: 2010
Date of revision:
justice; fairness; taxation; policy mix;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
- Z10 - Other Special Topics - - Cultural Economics - - - General
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