The political economy of endogenous taxation and redistribution
Abstract: This paper examines a simple dynamic model in which agents vote over capital income taxation and redistributive transfers. We show that in equilibrium the typical agent's preferences over the tax rate are single-peaked and derive a closed-form solution for the majority-rule tax rate. We also show that high levels of initial wealth inequality can place the economy on the 'wrong side of the Laffer curve'.
File(s): File format is application/pdf http://dallasfed.org/assets/documents/research/papers/1997/wp9704.pdf
Provider: Federal Reserve Bank of Dallas
Part of Series: Working Papers
Publication Date: 1997
Pages: 7 pages
Note: Published as: Dolmas, Jim and Gregory W. Huffman (1997), "The Political Economy of Endogenous Taxation and Redistribution," Economics Letters 56 (2): 223-227.