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Voting over Taxes: The Case of Tax Evasion

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  • Traxler, Christian

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

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 1188.

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Date of creation: Sep 2006
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Handle: RePEc:lmu:muenec:1188

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Keywords: Majority Voting; Tax Evasion; Welfare Analysis; Redistribution;

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Citations

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Cited by:
  1. Traxler, Christian, 2012. "Majority voting and the welfare implications of tax avoidance," Journal of Public Economics, Elsevier, vol. 96(1), pages 1-9.
  2. Loukas Balafoutas, 2011. "How much income redistribution? An explanation based on vote-buying and corruption," Public Choice, Springer, vol. 146(1), pages 185-203, January.
  3. Bethencourt, Carlos & Kunze, Lars, 2013. "The political economics of redistribution, inequality and tax avoidance," MPRA Paper 51127, University Library of Munich, Germany.
  4. 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.
  5. Rainald Borck, 2009. "Voting on redistribution with tax evasion," Social Choice and Welfare, Springer, vol. 32(3), pages 439-454, March.
  6. Weinreich, Daniel, 2013. "Fair tax evasion and majority voting over redistributive taxation," MPRA Paper 48919, University Library of Munich, Germany.
  7. Salvatore Barbaro & Jens Suedekum, 2009. "Voting on income tax exemptions," Public Choice, Springer, vol. 138(1), pages 239-253, January.
  8. 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.
  9. 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.

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