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The impact of inequality on the municipal income tax in Finland

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  • Eero Lehto

Abstract

This study addresses the determination of the municipal income tax rate. In the theoretical public choice model introduced in this study we specify the central hypothesis, which says that low-income earners using their voting power tend to take advantage of high-income taxpayers. Our findings indicate that the median income earner will raise the municipal income tax rate the harder, the largerthe difference is between the mean income and the median income. The evidence for this impact becomes stronger when it is conditioned on the voting rate. According to this, only if the voting rateexceeds a certain limit – which is quite close to the average voting rate – does inequality start to work in the direction expected. The larger inequality then raises the municipal income tax rate.

Suggested Citation

  • Eero Lehto, 2012. "The impact of inequality on the municipal income tax in Finland," Working Papers 275, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    • Handle: RePEc:pst:wpaper:275
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    More about this item

    Keywords

    income inequality; municipal income tax rate; median voter;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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