Tax Structure and Government Expenditures under Tax Equity Norms

Tobias Koenig and Andreas Wagener
Authors registered in the RePEc Author Service: Tobias Steffen König

No 3205, CESifo Working Paper Series from CESifo

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 recommendation for small open economies that capital should remain tax-exempt. 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 call for 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: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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