Inequality and the composition of taxes

Andrew Pickering and Sheraz Rajput ()

International Tax and Public Finance, 2018, vol. 25, issue 4, No 7, 1028 pages

Abstract: Abstract This paper analyses the political economics of the composition of taxes. Taxes may be levied on income, or on expenditure, with the median voter pivotal in the theoretical framework analysed. As in Meltzer and Richard (J Polit Econ 89:914–927, 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. In contrast to government size evidence, 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: 2018
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s10797-017-9476-x

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