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Redistributive Taxation and Public Expenditures

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  • Sanghamitra Bandyopadhyay
  • Joan Esteban

Abstract

We introduce a model of redistributive income taxation and public expenditure. Besides redistributing personal income by means of taxes and transfers, the government supplies goods and services. The government chooses the tax schedule that is found acceptable by the largest share possible of the population. We show that there is a unique income tax schedule that is universally acceptable. The progressivity of the income tax is shown to depend on the composition of the public expenditure and on the substitutability between the goods and services supplied by the government and the consumption goods privately obtained through the market. We test the empirical implications of the model. Specifically, we use OECD data to observe the relationship between marginal tax rates and the distribution over the taxpayers of the benefits produced by the specific composition of the government expenditure in the provision of goods and services. We confirm that for lower elasticities of substitution between public and private goods, there is a negative relationship between marginal tax rates and pro-taxpayer-bias, and for higher elasticities, there is a positive relationship.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 366.

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Date of creation: 01 Oct 2007
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Handle: RePEc:oxf:wpaper:366

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Keywords: Government Policy; Income Taxation; Public Expenditure;

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Cited by:
  1. Joan Esteban & Laura Mayoral, 2013. "A Politico-Economic Model of Public Expenditure and Income Taxation," Working Papers 743, Barcelona Graduate School of Economics.
  2. Carbonell-Nicolau Oriol, 2009. "A Positive Theory of Income Taxation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-49, July.

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