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Tax structure and government expenditures with tax equity concerns

Tobias Koenig and Andreas Wagener

Journal of Economic Behavior & Organization, 2013, vol. 90, issue C, 137-153

Abstract: We augment a standard tax model by concerns about tax equity: people get upset when labour is taxed more heavily than capital. Even the slightest concern for tax equity invalidates the common tenet that capital remains tax-exempt in small open economies. This holds for exogenous as well as for endogenous government expenditures and irrespective of whether concerns with tax equity only cause emotional discomfort or also impact on work incentives. If concerns with tax equity get more intense, the economy may choose higher taxes on labour and move to the downward sloped part of its Laffer curve. For endogenous government spending, stronger concerns with tax equity may lead to a larger size of the public sector.

Keywords: Justice; Fairness; Taxation; Policy mix (search for similar items in EconPapers)
JEL-codes: E62 H20 P16 Z10 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:90:y:2013:i:c:p:137-153

DOI: 10.1016/j.jebo.2012.04.019

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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