Redistributive Taxation and PublicExpenditures

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 publicexpenditure. Besides redistributing personal income by means of taxesand transfers, the government supplies goods and services. Thegovernment chooses the tax schedule that is found acceptable by thelargest share possible of the population. We show that there is a uniqueincome tax schedule that is universally acceptable. The progressivity ofthe income tax is shown to depend on the composition of the publicexpenditure and on the substitutability between the goods and servicessupplied by the government and the consumption goods privatelyobtained through the market. We test the empirical implications of themodel. Specifically, we use OECD data to observe the relationshipbetween marginal tax rates and the distribution over the taxpayers of thebenefits produced by the specific composition of the governmentexpenditure in the provision of goods and services. We confirm that forlower elasticities of substitution between public and private goods, thereis a negative relationship between marginal tax rates and pro-taxpayerbias,and for higher elasiticities, there is a positive relationship.

Keywords: Government policy; Income Taxation; Public Expenditure (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-ltv, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Redistributive taxation and public expenditures (2007)
Working Paper: Redistributive Taxation and Public Expenditures (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stidar:95

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