IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_543.html
   My bibliography  Save this paper

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

Author

Listed:
  • Lars-Erik Borge
  • Jørn Rattsø

Abstract

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.

Suggested Citation

  • Lars-Erik Borge & Jørn Rattsø, 2001. "Income Distribution and Tax Structure: Microeconomic Test of the Meltzer-Richard Hypothesis," CESifo Working Paper Series 543, CESifo.
    • Handle: RePEc:ces:ceswps:_543
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo_wp543.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lars-Erik Borge & Jørn Rattsø, 1998. "Demographic Shift, Relative Costs and the Allocation of Local Public Consumption in Norway," Chapters, in: Jørn Rattsø (ed.), Fiscal Federalism and State–local Finance, chapter 5, pages 71-92, Edward Elgar Publishing.
    2. 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.
    3. Goodspeed, Timothy J., 1998. "The Relationship Between State Income Taxes and Local Property Taxes: Education Finance in New Jersey," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(2), pages 219-238, June.
    4. Alesina, Alberto & Baqir, Reza & Easterly, William, 2000. "Redistributive Public Employment," Journal of Urban Economics, Elsevier, vol. 48(2), pages 219-241, September.
    5. Brown, Charles C. & Oates, Wallace E., 1987. "Assistance to the poor in a federal system," Journal of Public Economics, Elsevier, vol. 32(3), pages 307-330, April.
    6. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
    7. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482, Elsevier.
    8. Henderson, J. Vernon, 1994. "Community choice of revenue instruments," Regional Science and Urban Economics, Elsevier, vol. 24(2), pages 159-183, April.
    9. 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.
    10. Borge, Lars-Erik & Rattsø, Jørn, 2008. "Property taxation as incentive for cost control: Empirical evidence for utility services in Norway," European Economic Review, Elsevier, vol. 52(6), pages 1035-1054, August.
    11. Holtz-Eakin, Douglas & Rosen, Harvey, 1990. "Federal deductibility and local property tax rates," Journal of Urban Economics, Elsevier, vol. 27(3), pages 269-284, May.
    12. Hettich, Walter & Winer, Stanley L, 1988. "Economic and Political Foundations of Tax Structure," American Economic Review, American Economic Association, vol. 78(4), pages 701-712, September.
    13. 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.
    14. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    15. 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.
    16. 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.
    17. 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.
    18. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
    19. 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;National Tax Journal, vol. 47(4), pages 799-816, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mollaesmaeili Dehshiri, Hassan & Pajouyan, Jamshid & Hosseini, Shamseddin & Ghaffari, Farhad, 2020. "Analyzing the Impact of Fiscal Policy (Income Tax) on Income Distribution in Iran by Autoregressive Distributed Lag (ARDL) Approach," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 15(2), pages 221-234, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Borge, Lars-Erik & Rattso, J.Jorn, 2004. "Income distribution and tax structure: Empirical test of the Meltzer-Richard hypothesis," European Economic Review, Elsevier, vol. 48(4), pages 805-826, August.
    2. 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.
    3. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2022. "On the effects of intergovernmental grants: a survey," Working Papers. Collection A: Public economics, governance and decentralization 2204, Universidade de Vigo, GEN - Governance and Economics research Network.
    4. James A. Robinson & Thierry Verdier, 2013. "The Political Economy of Clientelism," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(2), pages 260-291, April.
    5. Santiago Lago-Peñas, 2008. "Local Governments' Asymmetric Reactions to Grants," Public Finance Review, , vol. 36(2), pages 219-242, March.
    6. Alesina, Alberto & La Ferrara, Eliana, 2005. "Preferences for redistribution in the land of opportunities," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 897-931, June.
    7. Holger Strulik, 2007. "A distributional theory of government growth," Public Choice, Springer, vol. 132(3), pages 305-318, September.
    8. Campante, Filipe R., 2011. "Redistribution in a model of voting and campaign contributions," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 646-656, August.
    9. Jørn Rattsø & Per Tovmo, 2002. "Fiscal Discipline and Asymmetric Adjustment of Revenues and Expenditures: Local Government Responses to Shocks in Denmark," Public Finance Review, , vol. 30(3), pages 208-234, May.
    10. Gamkhar, Shama & Olson, Jerome A., 2001. "Asymmetric responses in economic models," Journal of Policy Modeling, Elsevier, vol. 23(5), pages 553-568, July.
    11. Christian Bredemeier, 2014. "Imperfect information and the Meltzer-Richard hypothesis," Public Choice, Springer, vol. 159(3), pages 561-576, June.
    12. Lars-Erik Borge & Jørn Rattsø, 2005. "The Relationships between Cost and User Charges: The Case of the Norwegian Utility Service," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 98-119, March.
    13. Shama Gamkhar, 2000. "Is the Response of State and Local Highway Spending Symmetric to Increases and Decreases in Federal Highway Grants?," Public Finance Review, , vol. 28(1), pages 3-25, January.
    14. Phuong Nguyen-Hoang & Yilin Hou, 2014. "Local Fiscal Responses to Procyclical Changes in State Aid," Publius: The Journal of Federalism, CSF Associates Inc., vol. 44(4), pages 587-608.
    15. Jesper Roine, 2006. "The political economics of not paying taxes," Public Choice, Springer, vol. 126(1), pages 107-134, January.
    16. Levaggi, Rosella & Zanola, Roberto, 2000. "The Flypaper Effect: Evidence from the Italian National Health System," POLIS Working Papers 10, Institute of Public Policy and Public Choice - POLIS.
    17. Fabrizio Carmignani, 2001. "Theory and Evidence on the Political Economy of Growth," Working Papers 33, University of Milano-Bicocca, Department of Economics, revised Jan 2001.
    18. Gonzalez-Eiras, Martín & Niepelt, Dirk, 2012. "Ageing, government budgets, retirement, and growth," European Economic Review, Elsevier, vol. 56(1), pages 97-115.
    19. Mark Gradstein & Branko Milanovic, 2004. "Does Libertè = Egalité? A Survey of the Empirical Links between Democracy and Inequality with Some Evidence on the Transition Economies," Journal of Economic Surveys, Wiley Blackwell, vol. 18(4), pages 515-537, September.
    20. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't The US Have a European-Style Welfare State?," Harvard Institute of Economic Research Working Papers 1933, Harvard - Institute of Economic Research.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_543. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.