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Income Distribution and Tax Structure: Microeconomic Test of the Meltzer-Richard Hypothesis

  • Lars-Erik Borge
  • Jørn Rattsø

The tax structure is important for the income distribution and therefore a key playground for redistributive politics. The standard theory assumes that more unequal income distribution will create a majority for more redistribution (Meltzer and Richard). This study investigates the empirical validity of this relationship in a microeconomic study of the tax structure in decentralized government in Norway. The choice of revenue instruments studied involves user charges and property taxes oriented towards housing. While user charges act as head taxes, property taxes have distributive consequences. The approach is in the tradition of majority rule, and we show how the local government decisions regarding tax structure and spending level can be understood as one-dimensional. This motivates the empirical analysis where the actual income distribution is measured by the ratio of median to mean income. The estimated model confirms that more equal income distribution implies a shift in the tax burden from property taxes to user charges.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 543.

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Date of creation: 2001
Date of revision:
Handle: RePEc:ces:ceswps:_543
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  1. repec:tpr:qjecon:v:109:y:1994:i:2:p:465-90 is not listed on IDEAS
  2. Goodspeed, Timothy, 1998. "The Relationship Between State Income Taxes and Local Property Taxes: Education Finance in New Jersey," MPRA Paper 29549, University Library of Munich, Germany.
  3. Skidmore, Mark, 1999. " Tax and Expenditure Limitations and the Fiscal Relationships between State and Local Governments," Public Choice, Springer, vol. 99(1-2), pages 77-102, April.
  4. Lars-Erik Borge & Jørn Rattsø, 2003. "Property taxation as incentive for cost control: Empirical evidence for utility services in Norway," ERSA conference papers ersa03p219, European Regional Science Association.
  5. Alesina, Alberto & Baqir, Reza & Easterly, William, 2000. "Redistributive Public Employment," Journal of Urban Economics, Elsevier, vol. 48(2), pages 219-241, September.
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  8. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  9. Charles Brown & Wallace E. Oates, 1985. "Assistance to the Poor in a Federal System," NBER Working Papers 1715, National Bureau of Economic Research, Inc.
  10. Paul, Gilles Saint & Verdier, Thierry, 1996. "Inequality, redistribution and growth: A challenge to the conventional political economy approach," European Economic Review, Elsevier, vol. 40(3-5), pages 719-728, April.
  11. Stine, William F., 1994. "Is Local Government Revenue Response to Federal Aid Symmetrical? Evidence from Pennsylvania County Governments in a Era of Retrenchment," National Tax Journal, National Tax Association, vol. 47(4), pages 799-816, December.
  12. Allan Meltzer & Scott Richard, 1983. "Tests of a rational theory of the size of government," Public Choice, Springer, vol. 41(3), pages 403-418, January.
  13. Borge, Lars-Erik, 2000. "Charging for public services: the case of utilities in Norwegian local governments," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 703-718, December.
  14. Torsten Persson & Guido Tabellini, . "Political Economics and Macroeconomic Policy," Working Papers 121, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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  16. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645 Elsevier.
  17. repec:oup:qjecon:v:109:y:1994:i:2:p:465-90 is not listed on IDEAS
  18. Borge, Lars-Erik & Rattso, Jorn, 1995. "Demographic shift, relative costs and the allocation of local public consumption in Norway," Regional Science and Urban Economics, Elsevier, vol. 25(6), pages 705-726, December.
  19. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
  20. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
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