The impact of inequality on the municipal income tax in Finland

Eero Lehto

No 275, Working Papers from Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE

Abstract: This study addresses the determination of the municipal income tax rate. In the theoretical public choice model introduced in this study we specify the central hypothesis, which says that low-income earners using their voting power tend to take advantage of high-income taxpayers. Our findings indicate that the median income earner will raise the municipal income tax rate the harder, the largerthe difference is between the mean income and the median income. The evidence for this impact becomes stronger when it is conditioned on the voting rate. According to this, only if the voting rateexceeds a certain limit – which is quite close to the average voting rate – does inequality start to work in the direction expected. The larger inequality then raises the municipal income tax rate.

Keywords: income inequality; municipal income tax rate; median voter (search for similar items in EconPapers)
JEL-codes: D31 D72 H22 H24 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012-04-01
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