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Tax Structure and Government Expenditures under Tax Equity Norms

Author

Listed:
  • Tobias Koenig
  • Andreas Wagener

Abstract

We augment a standard tax model by concerns about tax equity: people get upset when labour is taxed more heavily than capital. Even the slightest concern for tax equity invalidates the common recommendation for small open economies that capital should remain tax-exempt. This holds for exogenous as well as for endogenous government expenditures and irrespective of whether concerns with tax equity only cause emotional discomfort or also impact on work incentives. If concerns with tax equity get more intense, the economy may choose higher taxes on labour and move to the downward sloped part of its Laffer curve. For endogenous government spending, stronger concerns with tax equity may call for a larger size of the public sector.

Suggested Citation

  • Tobias Koenig & Andreas Wagener, 2010. "Tax Structure and Government Expenditures under Tax Equity Norms," CESifo Working Paper Series 3205, CESifo.
    • Handle: RePEc:ces:ceswps:_3205
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp3205.pdf
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    References listed on IDEAS

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    1. Lévy-Garboua, Louis & Masclet, David & Montmarquette, Claude, 2009. "A behavioral Laffer curve: Emergence of a social norm of fairness in a real effort experiment," Journal of Economic Psychology, Elsevier, vol. 30(2), pages 147-161, April.
    2. Francisco Alvarez-Cuadrado, 2007. "Envy, leisure, and restrictions on working hours," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1286-1310, November.
    3. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2006. "Welfare Implications Of The Interaction Between Habits And Consumption Externalities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 557-571, May.
    4. Lévy-Garboua, Louis & Masclet, David & Montmarquette, Claude, 2009. "A behavioral Laffer curve: Emergence of a social norm of fairness in a real effort experiment," Journal of Economic Psychology, Elsevier, vol. 30(2), pages 147-161, April.
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    Cited by:

    1. Rune Ellemose Gulev & Hanna Lierse, 2012. "Cultural Repercussions: Extending Our Knowledge about How Values of Trust and Confidence Influence Tax Structures within Europe," International Journal of Management, Knowledge and Learning, International School for Social and Business Studies, Celje, Slovenia, vol. 1(1), pages 91-108.
    2. Rune Ellemose Gulev & Hanna Lierse, 2011. "Exploring the Connection between Culture and Taxation: How Trust and Confidence Shape Tax Regimes within Europe," MIC 2011: Managing Sustainability? Proceedings of the 12th International Conference, Portorož, 23–26 November 2011 [Selected Papers],, University of Primorska, Faculty of Management Koper.

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    More about this item

    Keywords

    justice; fairness; taxation; policy mix;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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