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A Contribution to the Positive Theory of Indirect Taxation

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  • Canegrati, Emanuele

Abstract

In this paper I analyse a probabilistic voting model where self-interested governments set their taxation policies in order to maximise the probabil- ity of winning elections. Society is divided into groups which have di¤erent preferences for the consumption of goods. Results show how candidates are captured by the most powerful groups, which not necessarily repre- sent the median voter but may be located at more extreme positions. The introduction of a probabilistic voting model characterized by the presence of single-minded groups overrules the classic results achieved by the me- dian voter theorem, because it is no longer the position on the income scale to drive the equilibrium policy but the ability of groups to focus on their most preferred goods, instead. This ability allows them to achieve a strong political power which candidates cannot help going along with, because they would lose elections otherwise.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6116.

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Date of creation: 05 Dec 2007
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Handle: RePEc:pra:mprapa:6116

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Keywords: Probabilistic Voting Theory; Single-mindedness; Indirect Taxation; Public Expenditure;

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  1. Michele Polo, . "Electoral competition and political rents," Working Papers 144, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Emmanuel Saez, 2000. "The Desirability of Commodity Taxation under Non-Linear Income Taxation and Heterogeneous Tastes," NBER Working Papers 8029, National Bureau of Economic Research, Inc.
  3. Klaus Beckmann & Elisabeth Lackner-Frey, 2002. "How Leviathan Taxes," Constitutional Political Economy, Springer, vol. 13(3), pages 265-273, September.
  4. Laroque, Guy R., 2005. "Indirect taxation is superfluous under separability and taste homogeneity: a simple proof," Economics Letters, Elsevier, vol. 87(1), pages 141-144, April.
  5. Casey B. Mulligan & Xavier Sala-i-Martín, 2003. "Social security, retirement, and the single-mindedness of the electorate," Economics Working Papers 686, Department of Economics and Business, Universitat Pompeu Fabra.
  6. canegrati, emanuele, 2006. "The Single-Mindedness Theory: Micro-foundation and Applications to Social Security Systems," MPRA Paper 1223, University Library of Munich, Germany.
  7. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127 Elsevier.
  8. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
  9. Peter H. Lindert, . "Three Centuries Of Inequality In Britain And America," Department of Economics 97-09, California Davis - Department of Economics.
  10. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
  11. Kaplow, Louis, 2006. "On the undesirability of commodity taxation even when income taxation is not optimal," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1235-1250, August.
  12. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  13. Lindbeck, Assar & Weibull, Jorgen W., 1993. "A model of political equilibrium in a representative democracy," Journal of Public Economics, Elsevier, vol. 51(2), pages 195-209, June.
  14. Gerald Kramer, 1983. "Is there a demand for progressivity?," Public Choice, Springer, vol. 41(1), pages 223-228, January.
  15. Michael Keen, 2007. "VAT Attacks!," IMF Working Papers 07/142, International Monetary Fund.
  16. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
  17. Frank Cowell, 1998. "Measurement of inequality," LSE Research Online Documents on Economics 2084, London School of Economics and Political Science, LSE Library.
  18. Hettich,Walter & Winer,Stanley L., 2005. "Democratic Choice and Taxation," Cambridge Books, Cambridge University Press, number 9780521021807, April.
  19. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  20. Gahvari, Firouz, 2006. "On the marginal cost of public funds and the optimal provision of public goods," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1251-1262, August.
  21. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
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