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Machiavellian Taxation? The political economy of public service financing

  • Germa Bel

    (Cornell University & Universitat de Barcelona)

  • Antonio Miralles

    (Boston University)

In this paper, we develop a simple theoretical model in order to explain how politicians choose between progressive and regressive tax schemes that serve to afford some local service production costs. It consists of a bipartisan model in which each party’s preferences are lexicographic, giving priority to winning but following ideological preferences given that it wins. Concerning voters, this model distinguishes for the first time in the literature between pragmatic majorities and social ones, and predicts what happens when both majorities have the same ideological sign and what happens when these majorities are in conflict. “Pragmatic” refers to local-specific considerations regarding general performance of the government while “social” makes reference to issues related to voters’ wealth status and social class. Ruling party’s identity follows from pragmatic considerations, but tax policies becomes a moderate equilibrium between ideological ruling party’s preferences and social majority’s ones. A tax policy would be extreme (either progressive or conservative) if and only if both social majority and pragmatic majority (ruling party) are of the same ideological sign. These predictions are successfully tested by OLS regression thru the use of a wide sample of municipalities concerning waste collection and treatment service- specific deficits.

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Paper provided by EconWPA in its series Public Economics with number 0409013.

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Length: 22 pages
Date of creation: 24 Sep 2004
Date of revision:
Handle: RePEc:wpa:wuwppe:0409013
Note: Type of Document - pdf; pages: 22
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