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Majority Voting and the Welfare Implications of Tax Avoidance

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  • Christian Traxler

    ()
    (Max Planck Institute for Research on Collective Goods)

Abstract

A benchmark result in the political economy of taxation is that majority voting over a linear income tax schedule will result in an ine±ciently high tax rate whenever the median voter has a below average income. The present paper examines the role of tax avoidance for this welfare assessment. We find that the inefficiency in the voting equilibrium is the lower, the higher the average level of tax avoidance in the economy, or equivalently, the lower the median voter's amount of avoidance. The result holds for endogenous avoidance and labor choice and, under certain conditions, for an endogenous enforcement policy.

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Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2009_22.

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Date of creation: Jul 2009
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Handle: RePEc:mpg:wpaper:2009_22

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Keywords: Tax avoidance; welfare analysis; majority voting; median voter equilibrium;

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Citations

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Cited by:
  1. Ángel Solano García, 2014. "Fairness in Tax compliance: A Political Competition Model," ThE Papers 14/02, Department of Economic Theory and Economic History of the University of Granada..
  2. Barnett, Richard & Bhattacharya, Joydeep & Bunzel, Helle, 2012. "Voting for immiserizing income redistribution in the Meltzer-Richard model," School of Economics Working Paper Series 2012-15, LeBow College of Business, Drexel University.
  3. Bethencourt, Carlos & Kunze, Lars, 2013. "The political economics of redistribution, inequality and tax avoidance," MPRA Paper 51127, University Library of Munich, Germany.
  4. Richard C. Barnett & Joydeep Bhattacharya & Helle Bunzel, 2014. "Voting For Income-Immiserizing Redistribution In The Meltzer–Richard Model," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 682-695, 04.
  5. 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.
  6. Weinreich, Daniel, 2013. "Fair tax evasion and majority voting over redistributive taxation," MPRA Paper 48919, University Library of Munich, Germany.

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