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The scope of political redistribution with proportional income taxation

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  • Lopez-Rodriguez, David

Abstract

This paper investigates the politicians �incentives to pursue income redistribution when governments are constrained to levy taxes on labor income and this creates distortions. Politicians who strive to be elected may strategically redistribute through in-kind rather than cash transfers and overprovide consumption of goods. I show that the overprovision of in-kind transfers reduces the disincentive e¤ects of taxation in labor effort and enlarges the pool of resources for political redistribution. As a result, politicians are able to implement larger redistributive transfers and improve the well-being of swing voters. Hence, electoral competition for pivotal voters provides politicians incentives to implement redistributive schedules that reduce distortions in labor markets and improve the e¢ ciency of the taxation system.

Suggested Citation

  • Lopez-Rodriguez, David, 2011. "The scope of political redistribution with proportional income taxation," MPRA Paper 44150, University Library of Munich, Germany, revised 2012.
    • Handle: RePEc:pra:mprapa:44150
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    More about this item

    Keywords

    political income redistribution; swing voters; political distortions; in-kind transfers;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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