Income Taxation and the Diversity of Consumer Goods: A Political Economy Approach

Renaud Bourlès (), Michael Dorsch and Paul Maarek

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Abstract: After‐tax income inequality has risen since the mid‐1990s, as increases in market income inequality have not been offset by greater fiscal redistribution. We argue that the substantial increase in the diversity of consumer goods has mitigated mounting political pressures for redistribution. Within a probabilistic voting framework, we demonstrate that if the share of diversified goods in the consumption bundle increases sufficiently with income, then an increase in goods diversity can reduce the political equilibrium tax rate. Focusing on OECD countries, we find empirical support for both the model's micro‐political foundations and the implied relation between goods diversity and fiscal policy outcomes.

Keywords: Probabilistic voting; Variety; Non-homothetic preferences; Panel data; Redistribution (search for similar items in EconPapers)
Date: 2019-07
New Economics Papers: this item is included in nep-pbe and nep-pol
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Published in Scandinavian Journal of Economics, 2019, 121 (3), pp.960-993. ⟨10.1111/sjoe.12307⟩

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Related works:
Journal Article: Income Taxation and the Diversity of Consumer Goods: A Political Economy Approach (2019)
Working Paper: Income Redistribution and the Diversity of Consumer Goods (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02474671

DOI: 10.1111/sjoe.12307

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