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Tax structure and government expenditures with tax equity concerns

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  • Koenig, Tobias
  • Wagener, Andreas

Abstract

We augment a standard tax model by concerns about tax equity: people get upset when labour is taxed more heavily than capital. Even the slightest concern for tax equity invalidates the common tenet that capital remains tax-exempt in small open economies. This holds for exogenous as well as for endogenous government expenditures and irrespective of whether concerns with tax equity only cause emotional discomfort or also impact on work incentives. If concerns with tax equity get more intense, the economy may choose higher taxes on labour and move to the downward sloped part of its Laffer curve. For endogenous government spending, stronger concerns with tax equity may lead to a larger size of the public sector.

Suggested Citation

  • Koenig, Tobias & Wagener, Andreas, 2013. "Tax structure and government expenditures with tax equity concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 137-153.
  • Handle: RePEc:eee:jeborg:v:90:y:2013:i:c:p:137-153
    DOI: 10.1016/j.jebo.2012.04.019
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    1. Claudia Keser & David Masclet & Claude Montmarquette, 2020. "Labor Supply, Taxation, and the Use of Tax Revenues: A Real-Effort Experiment in Canada, France, and Germany," Public Finance Review, , vol. 48(6), pages 714-750, November.

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    More about this item

    Keywords

    Justice; Fairness; Taxation; Policy mix;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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