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Federal Reserve Bank of Cleveland
Working Papers
The Politics of Flat Taxes
Daniel R. Carroll
James Dolmas
Eric R. Young
Abstract

We study the determination of flat tax systems using a workhorse macroeconomic model of inequality. Our first result is that, despite the multidimensional policy space, equilibrium policies are typically unique (up to a fine grid numerical approximation). The majority voting outcome features (i) zero labor income taxation, (ii) simultaneous use of capital income and consumption taxation, and (iii) generally low transfers. We discuss the role of three factors—the initial heterogeneity in sources of income, the mobility of income and wealth, and the forward-looking aspect of voting—in determining the equilibrium mix of taxes.


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Daniel R. Carroll & James Dolmas & Eric R. Young, The Politics of Flat Taxes, Federal Reserve Bank of Cleveland, Working Papers 144201, 06 Sep 2017.
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Note: First version December 2014, with the title, “Majority Voting: A Quantitative Investigation.”
JEL Classification:
Subject headings:
Keywords: Political Economy; Essential Set; Voting; Inequality; Incomplete Markets
DOI: 10.26509/frbc-wp-201442r
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