Does a work effort norm lead to more efficient taxation in majority voting?
This paper introduces a work effort norm into a three-type ability approach to optimal linear income taxation. According to this social norm type, individuals experience stigma when working more or less than the average. This leads to a smaller dispersion in labor supply. The individual work incentives then induce post-tax income inequality to rise. Based on this, it can be shown that the socially optimal tax rate is unambiguously increasing with the strength of the work effort norm. Turning to majority voting the tax rate preferred by the median voter could decrease when the work effort norm is introduced. We can show that the majority tax rate turns out to be inefficiently low or high. Beyond, for large preference parameters the difference between the first-best tax rate and the majority tax rate seems to diminish. Further, for specific wage distributions there seem to exist a preference strength which ensures efficient taxation. Subsequently, the work effort norm can reduce the inefficiency implemented by majority voting.
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