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A Positive Theory of Income Taxation

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  • Oriol Carbonell-Nicolau

    ()
    (Rutgers University)

Abstract

We propose a dynamic version of the standard two-party electoral competition model adapted to nonlinear income taxation. The theory has a number of desirable features. First, equilibria always exist, even though the set of admissible tax policies is multidimensional. Second, the Nash set can be characterized generically, and its components give sharp predictions. Third, the features of equilibrium tax policies depend only on empirically meaningful fundamentals. Equilibrium tax schedules benefit the more numerous income groups and place the burden of taxation on income groups with fewer voters. For empirical income distributions, the features of an equilibrium tax schedule are reminiscent of Director's law of public income redistribution (Stigler [36]).

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200706.

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Length: 20 pages
Date of creation: 26 Oct 2007
Date of revision:
Handle: RePEc:rut:rutres:200706

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Keywords: nonlinear income taxation; electoral competitionh; Director's law; extensive zero-sum game;

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References

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  1. Jean Hindriks, 2000. "Is There a Demand for Income Tax Progressivity?," Working Papers 415, Queen Mary, University of London, School of Economics and Finance.
  2. DE DONDER, Philippe & HINDRIKS, Jean, . "The politics of progressive income taxation with incentive effects," CORE Discussion Papers RP -1673, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Gouveia, Miguel & Oliver, David, 1996. "Voting over flat taxes in an endowment economy," Economics Letters, Elsevier, vol. 50(2), pages 251-258, February.
  4. Kranich, Laurence, 2001. " Altruism and the Political Economy of Income Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(4), pages 455-69.
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  7. Sanghamitra Bandyopadhyay & Joan Esteban, 2007. "Redistributive taxation and public expenditures," LSE Research Online Documents on Economics 6537, London School of Economics and Political Science, LSE Library.
  8. Carbonell-Nicolau, Oriol & Klor, Esteban F., 2003. "Representative democracy and marginal rate progressive income taxation," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2339-2366, September.
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  20. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
  21. Hettich, Walter & Winer, Stanley L, 1988. "Economic and Political Foundations of Tax Structure," American Economic Review, American Economic Association, vol. 78(4), pages 701-12, September.
  22. Chen, Yan, 2000. " Electoral Systems, Legislative Process, and Income Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(1), pages 71-100.
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Cited by:
  1. Daniel R. Carroll, 2013. "The demand for income tax progressivity in the growth model," Working Paper 1106, Federal Reserve Bank of Cleveland.
  2. Zsofia Barany, 2011. "Income inequality and the progressivity of taxes in a coalition formation model," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.

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