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The Democratic Political Economy of Progressive Income Taxation

Author

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  • John E. Roemer

    (University of California)

Abstract

Why do both left and right political parties almost always propose progressive income taxation schemes in political competition? Analysis of this problem has been hindered by the two-dimensionality of the issue space. To give parties a choice over a domain which contains both progressive and regressive policies requires an issue space that is at least two-dimensional. Nash equilibrium between two parties with (complete) preferences over two-dimensional policies fails to exist. The author introduces a new equilibrium concept for political games, based on inner-party struggle. A party consists of three factions, reformists, militants, and opportunists: each faction has a complete preference order on policy space, but together they can only agree on a partial order. Inner-party unity equilibrium is defined as Nash equilibrium between two parties, each of which maximizes with respect to its quasi-order. Such equilibria exist in the two-dimensional model and in them, both parties propose progressive income taxation.

Suggested Citation

  • John E. Roemer, 1997. "The Democratic Political Economy of Progressive Income Taxation," Discussion Papers 97-03, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:9703
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    Keywords

    progressive taxation; spatial model;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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