 Income inequality, size of government, and tax progressivity: A positive theoryEuropean Economic Review, 2020, vol. 121, issue C Abstract: I investigate the relationship between income inequality and the composition of public spending in redistributive policies. I extend the Meltzer–Richard model of voting over redistribution allowing voters to choose not only the amount of a uniform lump-sum transfer, but also the level of provision of a public good. The governmental budget is balanced; thus these two choices determine the tax rate on labor income. The multidimensionality of the policy space implies that there is no Condorcet winner. I adopt a citizen-candidate model of electoral competition to tackle this problem. I show that the progressivity of the tax system is increasing in the mean-to-median income ratio while the size of the government need not be. This means that higher income inequality implies a more progressive tax system but, in contrast with the traditional analysis, it may also result in a smaller size of government. Such results are consistent with the most recent findings in the empirical literature. Keywords: Redistribution; Government; Tax system; Voting (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:121:y:2020:i:c:s0014292119301874 DOI: 10.1016/j.euroecorev.2019.103327 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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