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A probabilistic voting model of progressive taxation with incentive effects

Listed author(s):
  • 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. 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.
  2. De Donder, Philippe & Hindriks, Jean, 2003. "The politics of progressive income taxation with incentive effects," Journal of Public Economics, Elsevier, vol. 87(11), pages 2491-2505, October.
  3. Marhuenda, Francisco & Ortuno-Ortin, Ignacio, 1995. "Popular support for progressive taxation," Economics Letters, Elsevier, vol. 48(3-4), pages 319-324, June.
  4. HINDRIKS, Jean, "undated". "Is there a demand for income tax progressivity?," CORE Discussion Papers RP 1535, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
  6. John E. Roemer, 1997. "The Democratic Political Economy of Progressive Income Taxation," Discussion Papers 97-03, University of Copenhagen. Department of Economics.
  7. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
  8. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2004. "Is there a Political Support for the Double Burden on Prolonged Activity?," IDEI Working Papers 315, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Carbonell-Nicolau, Oriol & Klor, Esteban F., 2003. "Representative democracy and marginal rate progressive income taxation," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1137-1164, May.
  10. Gene M. Grossman & Elhanan Helpman, 1996. "Electoral Competition and Special Interest Politics," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 265-286.
  11. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  12. 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).
  13. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
  14. Carbonell-Nicolau, Oriol & Ok, Efe A., 2007. "Voting over income taxation," Journal of Economic Theory, Elsevier, vol. 134(1), pages 249-286, May.
  15. Laussel, Didier & Le Breton, Michel, 2002. "Unidimensional Downsian politics: median, utilitarian or what else?," Economics Letters, Elsevier, vol. 76(3), pages 351-356, August.
  16. 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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