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Redistributive Taxation, PublicExpenditure and the Size of Government


  • Sanghamitra Bandyopadhyay
  • Joan Esteban


We introduce a model of redistributive income taxation and public expenditure. Thisjoint treatment permits analyzing the interdependencies between the two policies: onecannot be chosen independently of the other. Empirical evidence reveals that partisanconfrontation essentially falls on expenditure policies rather than on income taxation.We examine the case in which the expenditure policy (or the size of government) ischosen by majority voting and income taxation is consistently adjusted. Thisadjustment consists of designing the income tax schedule that, given the expenditurepolicy, achieves consensus among the population. The model determines theconsensus income tax schedule, the composition of public expenditure and the size ofgovernment. The main results are that inequality is negatively related to the size ofgovernment and to the pro-rich bias in public expenditure, and positively ornegatively related to the marginal income tax, depending on substitutability betweengovernment supplied and market goods. These implications are validated usingOECD data.

Suggested Citation

  • Sanghamitra Bandyopadhyay & Joan Esteban, 2009. "Redistributive Taxation, PublicExpenditure and the Size of Government," STICERD - Distributional Analysis Research Programme Papers 095, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stidar:095

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    References listed on IDEAS

    1. Kolm, Serge-Christophe, 1976. "Unequal inequalities. II," Journal of Economic Theory, Elsevier, vol. 13(1), pages 82-111, August.
    2. Anthony F. Shorrocks & James E. Foster, 1987. "Transfer Sensitive Inequality Measures," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 485-497.
    3. Kolm, Serge-Christophe, 1976. "Unequal inequalities. I," Journal of Economic Theory, Elsevier, vol. 12(3), pages 416-442, June.
    4. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-1385, November.
    5. Satya Chakravarty & Swami Tyagarupananda, 2009. "The subgroup decomposable intermediate indices of inequality," Spanish Economic Review, Springer;Spanish Economic Association, vol. 11(2), pages 83-97, June.
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    More about this item


    Government policy; Income Taxation; Public Expenditure;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General


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