Public Spending and Taxation with Non-cooperative Families
We develop a political economy model of income taxation and public spending, in which we pay special attention to the composition of the latter. The significant economic unit is taken to be the household. Each household is made of two agents, positively sorted by wage, who engage in the non-cooperative home production of a household public good. This leads to an inefficient laissez-faire equilibrium. We consider three policy instruments, a tax rate on labour income, and two types of transfer to the household (cash versus in-kind). The in-kind transfer is one of the inputs in the home production process. Since the pre-intervention equilibrium is inefficient, there is a general consensus among the agents that some corrective taxation is needed; however, those at bottom of the income distribution, who prefer a redistributive (as opposed to corrective) policy, favour a combination of high taxes and cash transfers, while those at the top would rather have low taxes and in-kind provision. Assuming, as seems plausible according to the empirical evidence, that political participation and income are positively correlated, we find that the decisive agent, i.e. the one whose preferred policy wins at the political equilibrium, has income above the mean. (JEL codes: D13, D72, H31) Copyright The Author 2011. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: email@example.com, Oxford University Press.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 57 (2011)
Issue (Month): 2 (June)
|Contact details of provider:|| Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK|
Phone: +49 (89) 9224-0
Fax: 01865 267 985
Web page: http://cesifo.oxfordjournals.org/
More information through EDIRC
|Order Information:||Web: http://www.oup.co.uk/journals|