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Redistribution, Taxes, and the Median Voter

Author

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  • Marco Bassetto

    () (Research Department Federal Reserve Bank of Chicago)

  • Jess Benhabib

Abstract

We study a simple model of production, accumulation, and redistribution, where agents are heterogeneous in their initial wealth, and a sequence of redistributive tax rates is voted upon. Though the policy is infinite-dimensional, we prove that a median voter theorem holds if households have identical, Gorman aggregable preferences; furthermore, the tax policy preferred by the median voter has the "bang-bang" property

Suggested Citation

  • Marco Bassetto & Jess Benhabib, 2006. "Redistribution, Taxes, and the Median Voter," 2006 Meeting Papers 78, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:78
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    References listed on IDEAS

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    1. Chari, V.V. & Kehoe, Patrick J., 1999. "Optimal fiscal and monetary policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745 Elsevier.
    2. Jack, William & Lagunoff, Roger, 2006. "Dynamic enfranchisement," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 551-572, May.
    3. Benhabib, Jess & Rustichini, Aldo, 1997. "Optimal Taxes without Commitment," Journal of Economic Theory, Elsevier, vol. 77(2), pages 231-259, December.
    4. Andrew Atkeson & V. V. Chari & Patrick J. Kehoe, 1999. "Taxing capital income: a bad idea," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-17.
    5. Rothstein, Paul, 1991. "Representative Voter Theorems," Public Choice, Springer, vol. 72(2-3), pages 193-212, December.
    6. Bassetto, Marco, 2005. "Equilibrium and government commitment," Journal of Economic Theory, Elsevier, vol. 124(1), pages 79-105, September.
    7. Jess Benhabib & Adam Przeworski, 2006. "The political economy of redistribution under democracy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(2), pages 271-290, October.
    8. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    9. Chamley, Christophe, 1985. "Efficient Taxation in a Stylized Model of Intertemporal General Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 451-468, June.
    10. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
    11. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    12. Robert A. Pollak, 1971. "Additive Utility Functions and Linear Engel Curves," Review of Economic Studies, Oxford University Press, vol. 38(4), pages 401-414.
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    Citations

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    Cited by:

    1. Marina Azzimonti & Eva de Francisco & Per Krusell, 2006. "The political economy of labor subsidies," 2006 Meeting Papers 588, Society for Economic Dynamics.
    2. Alessandro Riboni & Facundo Piguillem, 2011. "Dynamic Bargaining over Redistribution in Legislatures," 2011 Meeting Papers 1320, Society for Economic Dynamics.
    3. Bishnu, Monisankar & Wang, Min, 2013. "Voting under temptation," Economics Letters, Elsevier, vol. 118(3), pages 419-423.
    4. Azzimonti, Marina & de Francisco, Eva & Krusell, Per, 2008. "Production subsidies and redistribution," Journal of Economic Theory, Elsevier, vol. 142(1), pages 73-99, September.
    5. Ludwig Straub & Iván Werning, 2014. "Positive Long Run Capital Taxation: Chamley-Judd Revisited," NBER Working Papers 20441, National Bureau of Economic Research, Inc.
    6. Gourio, François, 2009. "Is there a majority to support a capital tax cut?," Journal of Economic Dynamics and Control, Elsevier, vol. 33(6), pages 1278-1295, June.
    7. Facundo Piguillem & Anderson Schneider, 2013. "Heterogeneous Labor Skills, The Median Voter and Labor Taxes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 332-349, April.
    8. César Martinelli & John Duggan, 2014. "The Political Economy of Dynamic Elections: A Survey and Some New Results," Working Papers 1403, Centro de Investigacion Economica, ITAM.
    9. Ruediger Bachmann & Jinhui Bai, 2013. "Politico-Economic Inequality and the Comovement of Government Purchases," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 565-580, October.
    10. Kirill Borissov & Alexander Surkov, 2010. "Endogenous Growth in a Model with Heterogeneous Agents and Voting on Public Goods," EUSP Department of Economics Working Paper Series Ec-01/10, European University at St. Petersburg, Department of Economics, revised 29 Sep 2010.
    11. Jean Guillaume Forand & John Duggan, 2013. "Markovian Elections," Working Papers 1305, University of Waterloo, Department of Economics, revised Oct 2013.
    12. Sita Nataraj Slavov, 2014. "Public Versus Private Provision of Public Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(2), pages 222-258, April.

    More about this item

    Keywords

    Median voter; gorman aggregation; capital income taxes;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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