Redistributive Taxation, PublicExpenditure and the Size of Government

Sanghamitra Bandyopadhyay () and Joan Esteban ()

STICERD - Distributional Analysis Research Programme Papers from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: We introduce a model of redistributive income taxation and public expenditure. Thisjoint treatment permits analyzing the interdependencies between the two policies: onecannot be chosen independently of the other. Empirical evidence reveals that partisanconfrontation essentially falls on expenditure policies rather than on income taxation.We examine the case in which the expenditure policy (or the size of government) ischosen by majority voting and income taxation is consistently adjusted. Thisadjustment consists of designing the income tax schedule that, given the expenditurepolicy, achieves consensus among the population. The model determines theconsensus income tax schedule, the composition of public expenditure and the size ofgovernment. The main results are that inequality is negatively related to the size ofgovernment and to the pro-rich bias in public expenditure, and positively ornegatively related to the marginal income tax, depending on substitutability betweengovernment supplied and market goods. These implications are validated usingOECD data.

Keywords: Government policy; Income Taxation; Public Expenditure (search for similar items in EconPapers)
JEL-codes: H23 H50 O50 (search for similar items in EconPapers)
Date: 2009-12
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Redistributive Taxation, Public Expenditure, and Size of Governent (2015)
Working Paper: Redistributive Taxation, Public Expenditure, and Size of Governent (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stidar:095

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