Inequality and the composition of taxes

Andrew Pickering and Sheraz Rajput ()

Discussion Papers from Department of Economics, University of York

Abstract: This paper analyzes the political economics of the composition of taxes. Taxes may be levied on income, or on expenditure, and the median voter is pivotal in the theoretical framework analyzed. As in Meltzer and Richard (1981) income taxes increase with inequality. Conversely expenditure taxes first increase and then decrease with increasing inequality. The extent to which taxes are levied on income relative to expenditure unambiguously rises with inequality. Cross-country data exhibit a robust positive correlation between the extent to which taxes are levied on income relative to expenditure, and inequality. Consistent with the theory this relationship holds most significantly in stronger democracies.

Keywords: tax structure; inequality (search for similar items in EconPapers)
JEL-codes: D78 E62 H20 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pub
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Journal Article: Inequality and the composition of taxes (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:15/04

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