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The political economics of redistribution, inequality and tax avoidance

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  • Bethencourt, Carlos
  • Kunze, Lars

Abstract

A benchmark result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality. However, empirical evidence supporting such a relationship turns out to be mixed. This paper shows how these different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement. By focussing on structure induced equilibria in which taxpayers vote over the size of the income tax and the level of tax enforcement, we show that higher inequality may well decrease the extent of redistribution, depending on two opposing effects: the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51127.

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Date of creation: 31 Oct 2013
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Handle: RePEc:pra:mprapa:51127

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Keywords: Tax avoidance; Voting; Redistribution;

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References

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  1. Santo Milasi, 2012. "Top Income Shares and Budget Deficits," CEIS Research Paper, Tor Vergata University, CEIS 249, Tor Vergata University, CEIS, revised 08 Aug 2013.
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Cited by:
  1. Ángel Solano García, 2014. "Fairness in Tax compliance: A Political Competition Model," ThE Papers, Department of Economic Theory and Economic History of the University of Granada. 14/02, Department of Economic Theory and Economic History of the University of Granada..

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