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The Politics of Progressive Income Taxation with Incentive Effects

  • Philippe De Donder

    (IDEI, University of Toulouse 1)

  • Jean Hindriks

    (Queen Mary and Westfield College, University of London)

This paper studies majority voting over non-linear income taxes when individuals respond to taxation by substituting untaxable leisure to taxable labor (incentive effects). We first show that voting cycle over progressive and regressive taxes is inevitable. This is because the middle-class can always lower its tax burden at the expense of the rich by imposing progressive taxes (convex tax function) while the rich and the poor can reduce their tax burden by imposing regressive taxes (concave tax function). We then investigate three solutions to this cycling problem: (i) reducing the policy space to the policies that are ideal for some voter; (ii) weakening the voting equilibrium concept; (iii) assuming parties also care about the size of their majority. The main results is that progressivity emerges as a voting equilibrium if there is a lack of polarization at the extremes of the income distribution. Interestingly the poor would prefer regressive taxes.

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File URL: http://www.econ.qmul.ac.uk/papers/doc/wp416.pdf
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Paper provided by Queen Mary University of London, School of Economics and Finance in its series Working Papers with number 416.

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Date of creation: Jul 2000
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Handle: RePEc:qmw:qmwecw:wp416
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  1. Tim Besley & Stephen Coate, . "An Economic Model of Representative Democracy," Penn CARESS Working Papers ecf70d639d700dba5327ab0c8, Penn Economics Department.
  2. John E. Roemer, 1999. "The Democratic Political Economy of Progressive Income Taxation," Econometrica, Econometric Society, vol. 67(1), pages 1-20, January.
  3. Richard Blundell & Alan Duncan & Costas Meghir, 1995. "Estimating labour supply responses using tax reforms," IFS Working Papers W95/07, Institute for Fiscal Studies.
  4. De Donder, Philippe & Hindriks, Jean, 1998. " The Political Economy of Targeting," Public Choice, Springer, vol. 95(1-2), pages 177-200, April.
  5. Gerald Kramer, 1983. "Is there a demand for progressivity?," Public Choice, Springer, vol. 41(1), pages 223-228, January.
  6. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
  7. David Epstein, 1997. "Uncovering some subtleties of the uncovered set: Social choice theory and distributive politics," Social Choice and Welfare, Springer, vol. 15(1), pages 81-93.
  8. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
  9. De Donder, Philippe & Le Breton, Michel & Truchon, Michel, 2000. "Choosing from a weighted tournament1," Mathematical Social Sciences, Elsevier, vol. 40(1), pages 85-109, July.
  10. Francisco Marhuenda & Ignacio Ortuño Ortín, 1995. "Popular Support For Progressive Taxation," Working Papers. Serie AD 1995-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. Marhuenda, Francisco & Ortuno-Ortin, Ignacio, 1995. "Popular support for progressive taxation," Economics Letters, Elsevier, vol. 48(3-4), pages 319-324, June.
  12. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
  13. Snyder, James M. & Kramer, Gerald H., 1988. "Fairness, self-interest, and the politics of the progressive income tax," Journal of Public Economics, Elsevier, vol. 36(2), pages 197-230, July.
  14. Osborne, Martin J & Slivinski, Al, 1996. "A Model of Political Competition with Citizen-Candidates," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 65-96, February.
  15. Philippe De Donder, 2000. "Majority voting solution concepts and redistributive taxation," Social Choice and Welfare, Springer, vol. 17(4), pages 601-627.
  16. Hettich, Walter & Winer, Stanley L, 1988. "Economic and Political Foundations of Tax Structure," American Economic Review, American Economic Association, vol. 78(4), pages 701-12, September.
  17. De Donder, Philippe & Le Breton, Michel & Truchon, Michel, 1998. "Choosing from a Weighted Tournament," Cahiers de recherche 9815, Université Laval - Département d'économique.
  18. Laslier, Jean-Francois & Trannoy, Alain & Van Der Straeten, Karine, 2003. "Voting under ignorance of job skills of unemployed: the overtaxation bias," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 595-626, March.
  19. Kramer, Gerald H., 1977. "A dynamical model of political equilibrium," Journal of Economic Theory, Elsevier, vol. 16(2), pages 310-334, December.
  20. Stigler, George J, 1970. "Director's Law of Public Income Redistribution," Journal of Law and Economics, University of Chicago Press, vol. 13(1), pages 1-10, April.
  21. Young, H Peyton, 1990. "Progressive Taxation and Equal Sacrifice," American Economic Review, American Economic Association, vol. 80(1), pages 253-66, March.
  22. Hinich, Melvin J. & Ledyard, John O. & Ordeshook, Peter C., 1972. "Nonvoting and the existence of equilibrium under majority rule," Journal of Economic Theory, Elsevier, vol. 4(2), pages 144-153, April.
  23. Laffond G. & Laslier J. F. & Le Breton M., 1993. "The Bipartisan Set of a Tournament Game," Games and Economic Behavior, Elsevier, vol. 5(1), pages 182-201, January.
  24. Jean-FranÚois Laslier, 2000. "Interpretation of electoral mixed strategies," Social Choice and Welfare, Springer, vol. 17(2), pages 283-292.
  25. Mitra, Tapan & Ok, Efe A. & Kockesen, Levent, 1998. "Popular support for progressive taxation and the relative income hypothesis," Economics Letters, Elsevier, vol. 58(1), pages 69-76, January.
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