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Altruism and the Political Economy of Income Taxation

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  • Laurence Kranich

Abstract

In this paper, I develop a positive model in which altruistic agents vote over quadratic (progressive) income tax schedules. The agents have heterogeneous preferences and productivities, and the model incorporates the incentive effects of taxation. The main result of the paper is that, under standard assumptions, there exists a self-confirming majority rule equilibrium in which the agents' labor supply decisions are optimal given the tax policy, and the tax policy is a majority rule equilibrium given the labor supply decisions. Thus, the agents' equilibrium labor supply decisions confirm voter expectations, but such expectations may be incorrect out of equilibrium. In contrast to most of the literature on voting and taxes, the model generates majority rule voting equilibria which involve progressive taxation, the norm in all industrialized countries.

Suggested Citation

  • Laurence Kranich, 1998. "Altruism and the Political Economy of Income Taxation," Discussion Papers 98-05, University at Albany, SUNY, Department of Economics.
    • Handle: RePEc:nya:albaec:98-05
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    Cited by:

    1. Joan Esteban & Laurence Kranich, "undated". "Redistributive Taxation With Endogenous Sentiments," Working Papers 33-02 Classification-JEL , Instituto de Estudios Fiscales.
    2. Philippe De Donder & Jean Hindriks, 2004. "Majority Support for Progressive Income Taxation with Corner Preferences," Public Choice, Springer, vol. 118(3_4), pages 437-449, March.
    3. Roland Iwan Luttens & Marie-Anne Valfort, 2012. "Voting for Redistribution under Desert-Sensitive Altruism," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 881-907, September.
    4. Carbonell-Nicolau Oriol, 2009. "A Positive Theory of Income Taxation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-49, July.
    5. Joan Esteban & Laurence Kranich, 2003. "The Social Contracts with Endogenous Sentiments," Working Papers 71, Barcelona School of Economics.
    6. Raul Alberto Ponce Rodriguez & Ikuho Kochi, 2017. "Remittances, Lorenz Dominance in the Distribution of Income and Redistribution," Review of Economics and Institutions, Università di Perugia, vol. 8(1).
    7. Matteo Cervellati & Joan Esteban & Laurence Kranich, 2010. "Work Values, Endogenous Sentiments and Redistribution," UFAE and IAE Working Papers 815.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    8. Cervellati, Matteo & Esteban, Joan & Kranich, Laurence, 2010. "Work values, endogenous sentiments redistribution," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 612-627, October.
    9. Raul Alberto Ponce Rodriguez & Benito Alan Ponce Rodríguez, 2023. "Remittances and the Size and Composition of Government Spending," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 18(4), pages 1-23, Octubre -.

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