Electoral competition, tax design and the tradeoff between redistribution and efficiency (original) (raw)
Related papers
2014
In this paper we analyze the design of tax structure through a model of electoral competition in which political parties have preferences over fiscal outcomes and the individuals’ vote is influenced by policy issues and partisan attitudes. We analyze the tradeoff between the representation of the narrow interests of the core supporters of the party versus the representation of the pluralist preferences of the electorate in tax policy. This tradeoff depends on the electoral constraints faced by parties. To predict tax policies, we introduce a model that can distinguish different sets of electoral constraints. Our model predicts that under soft electoral constraints, taxes on income elastic goods increase under Democrat administrations while they fall under Republican governments. If electoral constraints are binding, parties design tax policy to maximize a politically aggregated welfare function (PAWF). We identify conditions in which the preferences of partisan voters will have a high weight in the PAWF. In this case, we identify conditions in which redistribution is the main guiding principle in determining tax policy in Democrat administrations while efficiency is the main principle in tax design in Republican administrations.
Do political incentives matter for tax policies? Ideology, opportunism and the tax structure
2009
Abstract: This paper investigates the importance of political ideology and opportunism in the choice of the tax structure. In particular, we examine the effects of cabinet ideology and elections on the distribution of the tax burden across factors of production and consumption for 21 OECD countries over the period 1970-2000 by employing four alternative cabinet ideology measures and by using the methodology of effective tax rates. There is evidence of both opportunistic and partisan effects on tax policies.
Party size and policy outcomes: An empirical analysis of taxation in democracies
Studies in Comparative International Development, 2001
Taxation varies widely among democracies. Yet scholars disagree whether differences in political institutions help produce the variation. This article identifies top-down and bottom-up mechanisms by which political institutions are thought to influence taxation. It then combines political and economic data on more than 50 democracies to evaluate the impact of political institutions on government revenues. Cross-sectional and pooled time series analyses that include controls for economic conditions and partisan ideologies of governments confirm an indirect impact of these institutions: there is a curvilinear relationship between the size of political parties in a democracy and the tax revenues collected. Yet the effect of party size on policy outcomes is limited to a subset of democracies. The article opens new paths for research on the roles of electoral, constitutional, legislative, and party institutions in democratic policy making around the world.
A theory of income taxation where politicians focus upon core and swing voters
Social Choice and Welfare, 2010
We construct an equilibrium model of party competition, in which parties are especially concerned with their core and swing voters, concerns which political scientists have focused upon in their attempts to understand party behavior in general elections. Parties compete on an inifinite-dimensional space of possible income-tax policies. A policy is a function that maps pre-fisc income into post-fisc income. Only a fraction of each voter type will vote for each party, perhaps because of issues not modeled here or voter misperceptions of policies. Each party's policy makers comprise two factions, one concerned with maximizing the welfare of its constituency, or its core, and the other with winning over swing voters. An equilibrium is a pair of parties (endogenously determined), and a pair of policies, one for each party, in which no deviation to another policy will be assented to both its core and swing factions. We characterize the equilibria: they have the property that both parties propose identical treatment of a possibly large interval of middle-income voters, while the "left" party gives more to the poor and the "right" party more to the rich. An empirical section uses the data of Piketty and Saez on taxation in the US to assess the model's predictions. We argue that the model is roughly confirmed. The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare-all this and more is written in its fiscal history, stripped of all phrases. He who knows how to listen to its message here discerns the thunder of world history more clearly than anywhere else. 1
A Political Economy of Income Tax Policies
Political Science Research and Methods, 2015
Despite the close ties between tax-generated revenue and government policies, little is known about how political institutions shape the structure of tax choices across income levels. We propose and test a model based on the selectorate perspective, which predicts that leader choices regarding taxing and spending are driven by their desire to maximize their survival prospects against domestic challengers. The empirical tests investigate the conditions under which income taxes are non-existent, flat, more regressive or more progressive, and the degree of heterogeneity in tax systems as a function of governance institutions. The empirical results strongly and robustly support the theoretical predictions while also shedding light on how tax structures implemented in large coalition systems reduce income inequality.
The Welfare Effects of Tax Competition Reconsidered: Politicians and Political Institutions
The Economic Journal, 2009
The views on the welfare effects of tax competition differ widely. Some see the fiscal externalities as the cause for underprovision of public goods, while others see tax competition as the means of reducing government inefficiencies. Using a comparative politics approach we show that tax competition among presidential-congressional democracies is typically welfare improving, while harmful among parliamentary democracies if under the latter public goods are sufficiently valued. The results hold when politicians seek re-election because of exogenous benefits of holding office. By contrast, when politicians hold office only to extract rents, tax competition is harmful if politicians are sufficiently patient.
Tax Morale with Partisan Parties
Revista Hacienda Pública Española, 2015
This paper analyzes the political economy of income redistribution when voters are concerned about tax compliance. We consider a two stage-model where there is a two party competition over the tax rate in the …rst stage and voters decide about their level of tax compliance in the second stage. We model political competition à la Wittman with the ideology of parties endogenously determined at equilibrium. We calibrate the model for an average of EU-27 countries. Numerical simulations provide the tax rates proposed by the two parties and the level of tax compliance. We …nd that a decrease in the perceived average level of tax compliance, increase the probability that the party o¤ering the lowest income tax will win. Moreover, the same result is obtained when parties' uncertainty about the preferences of the median voter increases.
A Positive Theory of Income Taxation Where Politicians Focus upon Swing and Core Voters
RePEc: Research Papers in Economics, 2008
We construct an equilibrium model of party competition, in which parties are especially concerned with their core and swing voters, concerns which American political scientists have focused upon in their attempts to understand party behavior in general elections. Parties compete on a large policy space of possible income-tax policies. An element in this infinite-dimensional space is a function which maps pre-fisc income into post-fisc income. The only restrictions are that the function be continuous, and satisfy exogenously specified upper and lower bounds on its derivative, where it is differentiable. Only a fraction of each voter type will vote for each party, perhaps because of issues not modeled here or voter misperceptions of policies. Each party's policy makers comprise two factions, one concerned with maximizing the welfare of its constituency, or its core, the other with winning over swing voters. An equilibrium is a pair of parties (endogenously determined), and a pair of policies, one for each party, in which neither party can deviate to another policy which will be assented to by both its * I am grateful to Seok-ju Cho , Philippe De Donder and Michael Graetz for helpful discussions. I thank Joseph Bafumi for sharing his data with me on vote shares, and Kenneth Couch for assembling some of the data used in section 5. Emmanuel Saez also provided useful advice on the tax data. I thank seminar participants for their comments, when earlier versions of the paper were presented at the ESF workshop on public economics in Marseille-Luminy,
The complexity of tax structure in competitive political systems
International Tax and Public Finance, 1998
We explore the nature of tax complexity in competitive political systems. The analysis does not rely upon imperfections in the operation of the public sector. Complexity arises in the course of the struggle for office, during which political parties are induced to propose platforms that discriminate carefully among heterogeneous voters. A basic model is enriched by the addition of administration costs and self-selection, factors which limit the ability of any government to discriminate fully. The effect on complexity of inequalities in political influence is also investigated. The analysis suggests that simple tax systems (such as a flat tax or a broadly based tax without special provisions) are not compatible with vigorous political competition.
Scottish Journal of Political Economy, 2009
In this paper, we argue that tax-smoothing results based on total tax revenues may be of limited importance if in fact governments are concerned with the intertemporal distortionary effects of many kinds of taxes, when electoral and partisan motives also have to be taken into account. We develop an inter-temporal model that predicts that tax revenue mix should follow random walks. The model is tested with international data using both time series and panel-based unit root tests. We find that during the examined period, 1973-2003, governments are not optimizing tax components in the sense of Barro.