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Democracy, redistribution and optimal tax structures

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  • Santanu Gupta
  • Raghbendra Jha

Abstract

In a probabilistic voting model with three jurisdictions and residents with different incomes, we analyze inefficiencies in local public good allocation that emerge from trying to satisfy the median voter. The median voter and the rich may gain but the poor lose out. We analyze a uniform tax rate and progressive two and three bracket tax structures. If the government extracts part of tax revenues as political rents and maximizes expected payoff there is a possibility of taxing away all private income with no allocation of public good, if electoral uncertainty is high, especially when the government is risk neutral.

Suggested Citation

  • Santanu Gupta & Raghbendra Jha, 2016. "Democracy, redistribution and optimal tax structures," Departmental Working Papers 2016-13, The Australian National University, Arndt-Corden Department of Economics.
    • Handle: RePEc:pas:papers:2016-13
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    References listed on IDEAS

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    More about this item

    Keywords

    median voter; local public good; income redistribution;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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