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A Probabilistic Voting Model of Progressive Taxation with Incentive Effects

This paper shows conditions under which a marginally progressive income tax emerges as the outcome of political competition between two parties, when labor is elastically supplied and candidates are uncertain about voters' choice at election day. Assuming the elasticity of labor is decreasing on marginal wage; following Coughlin and Nitzan (1981) only marginal progressive taxes are played by both candidates in equilibrium. If; instead, we adopt Lindbeck and Weibull (1989) probabilistic voting model, the equilibrium tax schedule will be progressive as long as the political power of the rich voter is sufficiently small. The degree of progressivity decreases with population polarization.

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Paper provided by Universitat de les Illes Balears, Departament d'Economía Aplicada in its series DEA Working Papers with number 34.

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Date of creation: 2009
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Handle: RePEc:ubi:deawps:34
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  1. 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.
  2. John E. Roemer, 1997. "The Democratic Political Economy of Progressive Income Taxation," Discussion Papers 97-03, University of Copenhagen. Department of Economics.
  3. Coughlin, Peter & Nitzan, Shmuel, 1981. "Electoral outcomes with probabilistic voting and Nash social welfare maxima," Journal of Public Economics, Elsevier, vol. 15(1), pages 113-121, February.
  4. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
  5. Gene Grossman & Elhanan Helpman, 1994. "Electoral Competition and Special Interest Politics," NBER Working Papers 4877, National Bureau of Economic Research, Inc.
  6. Philippe De Donder & Jean Hindriks, 2000. "The Politics of Progressive Income Taxation with Incentive Effects," Working Papers 416, Queen Mary University of London, School of Economics and Finance.
  7. 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.
  8. Marhuenda, Francisco & Ortuno-Ortin, Ignacio, 1995. "Popular support for progressive taxation," Economics Letters, Elsevier, vol. 48(3-4), pages 319-324, June.
  9. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  10. Laussel, Didier & Le Breton, Michel, 2002. "Unidimensional Downsian politics: median, utilitarian or what else?," Economics Letters, Elsevier, vol. 76(3), pages 351-356, August.
  11. Jean Hindriks, 2000. "Is There a Demand for Income Tax Progressivity?," Working Papers 415, Queen Mary University of London, School of Economics and Finance.
  12. 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).
  13. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
  14. Georges Casamatta & Helmuth Cremer & Pierre Pestieau, 2006. "Is there a Political Support for the Double Burden on Prolonged Activity?," Economics of Governance, Springer, vol. 7(2), pages 143-154, May.
  15. Carbonell-Nicolau, Oriol & Ok, Efe A., 2007. "Voting over income taxation," Journal of Economic Theory, Elsevier, vol. 134(1), pages 249-286, May.
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