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A Contribution to the Positive Theory of Indirect Taxation

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  • Canegrati, Emanuele

Abstract

In this paper I analyse a probabilistic voting model where self-interested governments set their taxation policies in order to maximise the probabil- ity of winning elections. Society is divided into groups which have di¤erent preferences for the consumption of goods. Results show how candidates are captured by the most powerful groups, which not necessarily repre- sent the median voter but may be located at more extreme positions. The introduction of a probabilistic voting model characterized by the presence of single-minded groups overrules the classic results achieved by the me- dian voter theorem, because it is no longer the position on the income scale to drive the equilibrium policy but the ability of groups to focus on their most preferred goods, instead. This ability allows them to achieve a strong political power which candidates cannot help going along with, because they would lose elections otherwise.

Suggested Citation

  • Canegrati, Emanuele, 2007. "A Contribution to the Positive Theory of Indirect Taxation," MPRA Paper 6116, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:6116
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    References listed on IDEAS

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    Keywords

    Probabilistic Voting Theory; Single-mindedness; Indirect Taxation; Public Expenditure;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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