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A probabilistic voting model of progressive taxation with incentive effects

  • Jenny de Freitas

    ()

    (Universitat de les Illes Balears)

The purpose of this work is to show under what conditions a marginally progressive income tax emerges as the result of political competition between two parties when labor is elastically supplied and candidates are uncertain about voters' decisions on election day. Assuming a decreasing wage elasticity of labor supply, if we follow Coughlin and Nitzan (1981), only marginal-rate progressive taxes are chosen by both candidates in equilibrium. If, instead, we adopt Lindbeck and Weibull’s (1987) probabilistic voting model, the equilibrium tax schedule will be progressive as long as the political power of the rich voter is sufficiently low. The degree of progressivity decreases with population polarization.

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Article provided by IEF in its journal Hacienda Pública Española/Revista de Economía Pública.

Volume (Year): 190 (2009)
Issue (Month): 3 (September)
Pages: 9-26

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Handle: RePEc:hpe:journl:y:2009:v:190:i:3:p:9-26
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  1. 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).
  2. Grossman, Gene M & Helpman, Elhanan, 1996. "Electoral Competition and Special Interest Politics," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 265-86, April.
  3. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2004. "Is There a Political Support for the Double Burden on Prolonged Activity?," CEPR Discussion Papers 4706, C.E.P.R. Discussion Papers.
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  7. Francisco Marhuenda & Ignacio Ortuño Ortín, 1995. "Popular Support For Progressive Taxation," Working Papers. Serie AD 1995-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  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.
  9. Carbonell-Nicolau, Oriol & Ok, Efe A., 2007. "Voting over income taxation," Journal of Economic Theory, Elsevier, vol. 134(1), pages 249-286, May.
  10. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  11. 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.
  12. Marhuenda, Francisco & Ortuno-Ortin, Ignacio, 1995. "Popular support for progressive taxation," Economics Letters, Elsevier, vol. 48(3-4), pages 319-324, June.
  13. Laussel, Didier & Le Breton, Michel, 2002. "Unidimensional Downsian politics: median, utilitarian or what else?," Economics Letters, Elsevier, vol. 76(3), pages 351-356, August.
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  15. Coughlin, Peter & Nitzan, Shmuel, 1981. "Electoral outcomes with probabilistic voting and Nash social welfare maxima," Journal of Public Economics, Elsevier, vol. 15(1), pages 113-121, February.
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