Changing Social Preferences and Optimal Redistributive Taxation

Jang-Ting Guo and Alan Krause

No 201512, Working Papers from University of California at Riverside, Department of Economics

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.

Keywords: Nonlinear Taxation; Redistribution; Normative Taxation. (search for similar items in EconPapers)
JEL-codes: H21 H24 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-pbe and nep-pub
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https://economics.ucr.edu/repec/ucr/wpaper/201512.pdf First version, 2015 (application/pdf)

Related works:
Journal Article: Changing social preferences and optimal redistributive taxation (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:201512

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