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The political economy of endogenous taxation and redistribution

Author

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  • Dolmas, James

    () (Federal Reserve Bank of Dallas)

  • Huffman, Gregory W.

Abstract

This paper examines a simple dynamic model in which agents vote over capital income taxation and redistributive transfers. We show that in equilibrium the typical agent's preferences over the tax rate are single-peaked and derive a closed-form solution for the majority-rule tax rate. We also show that high levels of initial wealth inequality can place the economy on the 'wrong side of the Laffer curve'.

Suggested Citation

  • Dolmas, James & Huffman, Gregory W., 1997. "The political economy of endogenous taxation and redistribution," Working Papers 9704, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddwp:97-04
    Note: Published as: Dolmas, Jim and Gregory W. Huffman (1997), "The Political Economy of Endogenous Taxation and Redistribution," Economics Letters 56 (2): 223-227.
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    File URL: http://dallasfed.org/assets/documents/research/papers/1997/wp9704.pdf
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    References listed on IDEAS

    as
    1. Huffman, Gregory W., 1996. "Endogenous tax determination and the distribution of wealth," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 207-242, December.
    2. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January.
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    Cited by:

    1. Jim Dolmas & Gregory W. Huffman, 2004. "On The Political Economy Of Immigration And Income Redistribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1129-1168, November.
    2. Bayindir-Upmann, Thorsten & Raith, Matthias G., 2003. "Should high-tax countries pursue revenue-neutral ecological tax reforms?," European Economic Review, Elsevier, vol. 47(1), pages 41-60, February.
    3. Jim Dolmas & Gregory W. Huffman, 2003. "The Political Economy of Immigrationa and Income Redistribution," Vanderbilt University Department of Economics Working Papers 0312, Vanderbilt University Department of Economics.

    More about this item

    Keywords

    Voting; political economy; redistributive taxation;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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