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The Politics of Flat Taxes

Daniel Carroll, Jim Dolmas () and Eric Young ()

No 201442R, Working Papers from Federal Reserve Bank of Cleveland

Abstract: We study the determination of flat tax systems using a workhorse macroeconomic model of inequality. Our first result is that, despite the multidimensional policy space, equilibrium policies are typically unique (up to a fine grid numerical approximation). The majority voting outcome features (i) zero labor income taxation, (ii) simultaneous use of capital income and consumption taxation, and (iii) generally low transfers. We discuss the role of three factors?the initial heterogeneity in sources of income, the mobility of income and wealth, and the forward-looking aspect of voting?in determining the equilibrium mix of taxes.

Keywords: Political Economy; Incomplete Markets; Essential Set; Inequality; Voting (search for similar items in EconPapers)
JEL-codes: D52 D72 E62 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2017-09-06
Note: First version December 2014, with the title, “Majority Voting: A Quantitative Investigation.”
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Journal Article: The Politics of Flat Taxes (2021) Downloads
Working Paper: The Politics of Flat Taxes (2019) Downloads
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DOI: 10.26509/frbc-wp-201442r

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