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A Contribution to the Positive Theory of Direct Taxation

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Emanuele, Canegrati

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Abstract

In this paper I analyse a probabilistic voting model where political candidates choose a direct taxation policy to maximise the probability of winning elections. Society is divided into groups which have di¤erent preferences for consumption of leisure or, in other words, are di¤erently single-minded on the amount of leisure. The use of a probabilistic voting model characterized by the presence of single-minded groups breaks down the classic results obtained by using the median voter theorem, because it is no longer only the level of income which drives the equilibrium policies but also the ability of groups to focus on leisure. The robustness of these results is also demonstrated in the presence of heterogeneity in the labour income. Finally, using data from the Luxemburg Income Study, I demon- strate that the cohort-speci c inequality is signi cantly a¤ected by the structure of the taxation system and that policies chosen by politicians do not seem to be originated by the goal of equality.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6117.

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Date of creation: 05 Dec 2007
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Handle: RePEc:pra:mprapa:6117

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Related research
Keywords: Probabilistic Voting Theory; Single-mindedness; Direct Tax- ation; Income Distribution;

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Find related papers by JEL classification:
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation

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  1. Cowell, F.A., 2000. "Measurement of inequality," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 2, pages 87-166 Elsevier. [Downloadable!] (restricted)
  2. Canegrati, Emanuele, 2006. "The Single-Mindedness Theory: Micro-foundation and Applications to Social Security Systems," MPRA Paper 1223, University Library of Munich, Germany, revised Jun 2007. [Downloadable!]
  3. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
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  6. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February. [Downloadable!] (restricted)
  7. P. A. Diamond, 1975. "A Many-Person Ramsey Tax Rule," Working papers 146, Massachusetts Institute of Technology (MIT), Department of Economics.
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  8. 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. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
  10. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September. [Downloadable!] (restricted)
  11. Saez, Emmanuel, 2002. "The desirability of commodity taxation under non-linear income taxation and heterogeneous tastes," Journal of Public Economics, Elsevier, vol. 83(2), pages 217-230, February. [Downloadable!] (restricted)
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  12. 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. [Downloadable!] (restricted)
  13. Lindert, Peter H., 2000. "Three centuries of inequality in Britain and America," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 3, pages 167-216 Elsevier. [Downloadable!] (restricted)
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  14. repec:cup:cbooks:9780521622912 is not listed on IDEAS
  15. Casey B. Mulligan & Xavier Sala-i-Martin, 2003. "Social Security, Retirement, and the Single-Mindedness of the Electorate," NBER Working Papers 9691, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Michael Keen, 2007. "VAT Attacks!," IMF Working Papers 07/142, International Monetary Fund. [Downloadable!]
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  17. 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. [Downloadable!] (restricted)
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