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Multidimensional income taxation and electoral competition: an equilibrium analysis

Listed author(s):
  • Oriol Carbonell-Nicolau

    ()

    (Rutgers University)

  • Efe Ok

    ()

    (New York University)

One of the fundamental problems of the positive theory of income taxation is explaining why the statutory income tax schedules in all industrialized democracies are marginal-rate progressive. While it is commonly believed that this is but a simple consequence of the fact that the number of relatively poor voters exceeds that of richer voters in such societies, putting this contention in a voting equilibrium context proves to be a nontrivial task. We study the Downsian model in the context of nonlinear taxation and inquire about the possibility of providing a formal argument in support of the aforementioned intuition. We first show existence of mixed strategy equilibria and then ask qualitative questions about the nature of these equilibria. Our positive results show that there are cases where marginal-rate progressive taxes are chosen with probability one by the political parties. Our negative results show that, if the tax policy space is not artificially constrained, equilibria exist whose support does not lie within the set of all marginal-rate progressive taxes.

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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200407.

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Length: 20 pages
Date of creation: 12 Apr 2004
Handle: RePEc:rut:rutres:200407
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  1. Esteban F. Klor, 2003. "On the Popular Support for Progressive Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(4), pages 593-604, October.
  2. Carbonell, O. & Klor, E., 2000. "Representative Democracy and Marginal Rate Progressive Income Taxation," Working Papers 00-12, C.V. Starr Center for Applied Economics, New York University.
  3. John E. Roemer, 1999. "The Democratic Political Economy of Progressive Income Taxation," Econometrica, Econometric Society, vol. 67(1), pages 1-20, January.
  4. Jean-FranÚois Laslier, 2000. "Interpretation of electoral mixed strategies," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 17(2), pages 283-292.
  5. Laslier, Jean-Francois & Picard, Nathalie, 2002. "Distributive Politics and Electoral Competition," Journal of Economic Theory, Elsevier, vol. 103(1), pages 106-130, March.
  6. Alessro Lizzeri & Nicola Persico, "undated". "The Provision of Public Goods Under Alternative Electoral Incentives," Penn CARESS Working Papers b96440ba0bfa06ca550ac40aa, Penn Economics Department.
  7. A. Lizzeri & N. Persico, 2000. "The Drawbacks of Electoral Competition," Princeton Economic Theory Papers 00s14, Economics Department, Princeton University.
  8. Maskin, Eric, 1986. "The Existence of Equilibrium with Price-Setting Firms," American Economic Review, American Economic Association, vol. 76(2), pages 382-386, May.
  9. 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.
  10. Francisco Marhuenda Hurtado & Ignacio Ortuño Ortín, 1997. "Income taxation, uncertaintly and stability," Working Papers. Serie AD 1997-07, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. Mitra, Tapan & Ok, Efe A, 1996. "Personal Income Taxation and the Principle of Equal Sacrifice Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 925-948, November.
  12. Michael R. Baye & Guoqiang Tian & Jianxin Zhou, 1993. "Characterizations of the Existence of Equilibria in Games with Discontinuous and Non-quasiconcave Payoffs," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 935-948.
  13. Banks, Jeffrey S. & Duggan, John & Le Breton, Michel, 2002. "Bounds for Mixed Strategy Equilibria and the Spatial Model of Elections," Journal of Economic Theory, Elsevier, vol. 103(1), pages 88-105, March.
  14. Simon, Leo K & Zame, William R, 1990. "Discontinuous Games and Endogenous Sharing Rules," Econometrica, Econometric Society, vol. 58(4), pages 861-872, July.
  15. Philip J. Reny, 1999. "On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games," Econometrica, Econometric Society, vol. 67(5), pages 1029-1056, September.
  16. Gouveia, Miguel & Oliver, David, 1996. "Voting over flat taxes in an endowment economy," Economics Letters, Elsevier, vol. 50(2), pages 251-258, February.
  17. Tan, Kok-Keong & Yu, Jian & Yuan, Xian-Zhi, 1995. "Existence Theorems of Nash Equilibria for Non-cooperative N-Person Games," International Journal of Game Theory, Springer;Game Theory Society, vol. 24(3), pages 217-222.
  18. Marhuenda, Francisco & Ortuno-Ortin, Ignacio, 1995. "Popular support for progressive taxation," Economics Letters, Elsevier, vol. 48(3-4), pages 319-324, June.
  19. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
  20. Bhaskar Dutta & Jean-Francois Laslier, 1999. "Comparison functions and choice correspondences," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 16(4), pages 513-532.
  21. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
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