Working Paper

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'.

Keywords: Voting; political economy; redistributive taxation;

JEL Classification: D72; E60; E62;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 1997

Number: 9704

Note: Published as: Dolmas, Jim and Gregory W. Huffman (1997), "The Political Economy of Endogenous Taxation and Redistribution," Economics Letters 56 (2): 223-227.