Inequality and the composition of taxes

TY - UNPB

T1 - Inequality and the composition of taxes

AU - Pickering, Andrew Christopher

PY - 2015/3

Y1 - 2015/3

N2 - This paper analyzes the political economics of the composition of taxes. Taxes may be levied on income, or on expenditure, and the median voter is pivotal in the theoretical framework analyzed. As in Meltzer and Richard (1981) income taxes increase with inequality. Conversely expenditure taxes first increase and then decrease with increasing inequality. The extent to which taxes are levied on income relative to expenditure unambiguously rises with inequality. Cross-country data exhibit a robust positive correlation between the extent to which taxes are levied on income relative to expenditure, and inequality. Consistent with the theory this relationship holds most significantly in stronger democracies.

AB - This paper analyzes the political economics of the composition of taxes. Taxes may be levied on income, or on expenditure, and the median voter is pivotal in the theoretical framework analyzed. As in Meltzer and Richard (1981) income taxes increase with inequality. Conversely expenditure taxes first increase and then decrease with increasing inequality. The extent to which taxes are levied on income relative to expenditure unambiguously rises with inequality. Cross-country data exhibit a robust positive correlation between the extent to which taxes are levied on income relative to expenditure, and inequality. Consistent with the theory this relationship holds most significantly in stronger democracies.

KW - tax structure

KW - inequality

M3 - Discussion paper

T3 - University of York Department of Economics Discussion Papers in Economics

SP - 1

EP - 36

BT - Inequality and the composition of taxes

PB - Department of Economics and Related Studies, University of York

ER -