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Multidimensional income taxation and electoral competition: an equilibrium analysis

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Author Info
Oriol Carbonell-Nicolau () (Rutgers University)
Efe Ok () (New York University)

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Abstract

One of the fundamental problems of the positive theory of income taxation is explaining why the statutory income tax schedules in all industrialized democracies are marginal-rate progressive. While it is commonly believed that this is but a simple consequence of the fact that the number of relatively poor voters exceeds that of richer voters in such societies, putting this contention in a voting equilibrium context proves to be a nontrivial task. We study the Downsian model in the context of nonlinear taxation and inquire about the possibility of providing a formal argument in support of the aforementioned intuition. We first show existence of mixed strategy equilibria and then ask qualitative questions about the nature of these equilibria. Our positive results show that there are cases where marginal-rate progressive taxes are chosen with probability one by the political parties. Our negative results show that, if the tax policy space is not artificially constrained, equilibria exist whose support does not lie within the set of all marginal-rate progressive taxes.

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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200407.

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Length: 20 pages
Date of creation: 12 Apr 2004
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Handle: RePEc:rut:rutres:200407

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Related research
Keywords: marginal-rate progressive taxation; electoral competition; mixed strategy equilibrium;

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Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior

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References listed on IDEAS
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  3. Tan, Kok-Keong & Yu, Jian & Yuan, Xian-Zhi, 1995. "Existence Theorems of Nash Equilibria for Non-cooperative N-Person Games," International Journal of Game Theory, Springer, vol. 24(3), pages 217-22.
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  5. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December. [Downloadable!] (restricted)
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  11. Jean-FranÚois Laslier, 2000. "Interpretation of electoral mixed strategies," Social Choice and Welfare, Springer, vol. 17(2), pages 283-292. [Downloadable!] (restricted)
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  15. Philip J. Reny, 1999. "On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games," Econometrica, Econometric Society, vol. 67(5), pages 1029-1056, September.
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  18. Gouveia, Miguel & Oliver, David, 1996. "Voting over flat taxes in an endowment economy," Economics Letters, Elsevier, vol. 50(2), pages 251-258, February. [Downloadable!] (restricted)
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  21. Laslier, Jean-Francois & Picard, Nathalie, 2002. "Distributive Politics and Electoral Competition," Journal of Economic Theory, Elsevier, vol. 103(1), pages 106-130, March. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jean-François Laslier, 2006. "Ambiguity in Electoral Competition," Economics of Governance, Springer, vol. 7(2), pages 195-210, May. [Downloadable!] (restricted)
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