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Altruism and the Political Economy of Income Taxation

Laurence Kranich ()

Discussion Papers from University at Albany, SUNY, Department of Economics

Abstract: In this paper, I develop a positive model in which altruistic agents vote over quadratic (progressive) income tax schedules. The agents have heterogeneous preferences and productivities, and the model incorporates the incentive effects of taxation. The main result of the paper is that, under standard assumptions, there exists a self-confirming majority rule equilibrium in which the agents' labor supply decisions are optimal given the tax policy, and the tax policy is a majority rule equilibrium given the labor supply decisions. Thus, the agents' equilibrium labor supply decisions confirm voter expectations, but such expectations may be incorrect out of equilibrium. In contrast to most of the literature on voting and taxes, the model generates majority rule voting equilibria which involve progressive taxation, the norm in all industrialized countries.

Date: 1998
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