Redistributive Taxation, Public Expenditure, and Size of Governent

Sanghamitra Bandyopadhyay () and Joan Esteban ()

No 416, Working Papers from Barcelona School of Economics

Abstract: We introduce a model of redistributive income taxation and public expenditure. This joint treatment permits analyzing the interdependencies between the two policies: one cannot be chosen independently of the other. Empirical evidence reveals that partisan confrontation essentially falls on expenditure policies rather than on income taxation. We examine the case in which the expenditure policy (or the size of government) is chosen by majority voting and income taxation is consistently adjusted. This adjustment consists of designing the income tax schedule that, given the expenditure policy, achieves consensus among the population. The model determines the consensus income tax schedule, the composition of public expenditure and the size of government. The main results are that inequality is negatively related to the size of government and to the pro-rich bias in public expenditure, and positively or negatively related to the marginal income tax, depending on substitutability between government supplied and market goods. These implications are validated using OECD data.

Keywords: government policy; income taxation; public expenditure (search for similar items in EconPapers)
JEL-codes: H23 H50 (search for similar items in EconPapers)
Date: 2015-09
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Redistributive Taxation, Public Expenditure, and Size of Governent (2009)
Working Paper: Redistributive Taxation, PublicExpenditure and the Size of Government (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:416

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