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Changing Social Preferences and Optimal Redistributive Taxation

Author

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  • Jang-Ting Guo

    (Department of Economics, University of California Riverside)

  • Alan Krause

    (University of York)

Abstract

We examine a dynamic model of optimal nonlinear taxation of labor income and savings, in which there are two political parties: left-wing and right-wing. The parties differ only in their redistributive preferences, with the left-wing party having a stronger preference for redistribution. Our analysis explicitly considers the possibility that society's preference for redistribution may change, as reflected in its future voting behavior. The incumbent government respects the possibility that society's preference may change, and sets taxes to maximize expected social welfare. Our main result is that an incumbent left-wing (resp. right-wing) government will implement a regressive (resp. progressive) savings tax policy. The incumbent government implements this policy not out of self interest, but to accommodate the redistributive goals of the opposing party.

Suggested Citation

  • Jang-Ting Guo & Alan Krause, 2015. "Changing Social Preferences and Optimal Redistributive Taxation," Working Papers 201512, University of California at Riverside, Department of Economics.
    • Handle: RePEc:ucr:wpaper:201512
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    References listed on IDEAS

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    1. Jang‐Ting Guo & Alan Krause, 2011. "Optimal Nonlinear Income Taxation with Habit Formation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(3), pages 463-480, June.
    2. Guo, Jang-Ting & Krause, Alan, 2015. "Dynamic income taxation without commitment: Comparing alternative tax systems," Economic Modelling, Elsevier, vol. 47(C), pages 319-326.
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    Cited by:

    1. Sala, Hector, 2019. "A fresh look at fiscal redistribution and inequality in the US across electoral cycles," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 81(C), pages 195-206.

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    More about this item

    Keywords

    Nonlinear Taxation; Redistribution; Normative Taxation.;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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