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The political economics of not paying taxes

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  • Jesper Roine

Abstract

This paper considers redistributive as well as political consequences of tax avoidance. When tax avoidance is possible, the official tax rate does not necessarily correspond to what individuals actually pay. This affects both redistributive outcomes as well as political attitudes towards taxation. Depending on the avoidance technology different political equilibria emerge. When the avoidance possibilities are limited, the classical conflict between rich and poor is sustained. If the tax avoidance technology is more effective, however, the equilibrium outcome can change to a situation where a coalition of poor and the very richest favor a higher tax rate. Comparing the model predictions with data on income inequality and evidence of avoidance activity, it comes surprisingly close to actual observations. Copyright Springer Science + Business Media, Inc. 2006

Suggested Citation

  • Jesper Roine, 2006. "The political economics of not paying taxes," Public Choice, Springer, vol. 126(1), pages 107-134, January.
    • Handle: RePEc:kap:pubcho:v:126:y:2006:i:1:p:107-134
    DOI: 10.1007/s11127-006-6071-6
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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