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Federal Reserve Bank of Cleveland
The Politics of Flat Taxes
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.
Cite this item
Daniel R. Carroll & James Dolmas & Eric R. Young, The Politics of Flat Taxes, Federal Reserve Bank of Cleveland, Working Papers 144201, 06 Sep 2017.
Note: First version December 2014, with the title, “Majority Voting: A Quantitative Investigation.”
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
Keywords: Political Economy; Essential Set; Voting; Inequality; Incomplete Markets
This item with handle RePEc:fip:fedcwq:144201
is also listed on EconPapers
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