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Favoritism toward the Poor and a Discontinuous Tax Structure

Author

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  • Sato, Hideki

Abstract

This paper aims to theoretically clarify the following two points. First, even though the government shows favoritism toward the poor and wants to exempt low-income taxpayers and secure its necessary income tax revenue by taxing only high-income taxpayers, the government ends up taxing the poor, which is in opposition to favoritism, due to its inability to observe individual taxpayers'income levels. Second, even without observing each taxpayers' income level, if favoritism is sufficiently strong, the government can discontinuously resolve such unintentional taxation.

Suggested Citation

  • Sato, Hideki, 2015. "Favoritism toward the Poor and a Discontinuous Tax Structure," MPRA Paper 66945, University Library of Munich, Germany, revised Jun 2015.
    • Handle: RePEc:pra:mprapa:66945
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    File URL: https://mpra.ub.uni-muenchen.de/66945/1/MPRA_paper_66945.pdf
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    References listed on IDEAS

    as
    1. Graetz, Michael J & Reinganum, Jennifer F & Wilde, Louis L, 1986. "The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(1), pages 1-32, Spring.
    2. Ehrlich, Isaac, 1975. "The Deterrent Effect of Capital Punishment: A Question of Life and Death," American Economic Review, American Economic Association, vol. 65(3), pages 397-417, June.
    3. PESTIEAU, Pierre & POSSEN, Uri & SLUTSKY, Steven, 1994. "The Penalty for Tax Evasion when Taxes are set Optimally," LIDAM Discussion Papers CORE 1994016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Chander, Parkash & Wilde, Louis, 1992. "Corruption in tax administration," Journal of Public Economics, Elsevier, vol. 49(3), pages 333-349, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Favoritism; Optimal income taxation; Tax evasion; Nash equilibrium.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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