The Interaction of Tax Exemptions and Individual Tax Reform Preferences
University of Mainz - Department of Economic Theory
University of Duisburg-Essen; Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 1543
The individual voting behavior on the abolishment of single income-tax exemptions crucially depends on how strongly agents are affected by other deduction possibilities that are not at stake in the reform plans of the government. The interactions depend (i) on the shape of the tax schedule, and (ii) on how the government wants to use the revenue that is generated by the cut of tax privileges. If government plans to increase redistribution in form of lump-sum transfers, then the political chances of a tax reform increase with the existence of other deduction possibilities under progressive taxation. With proportional taxation and a budget-enlargement policy, the voting decision depends only on the particular tax privileges at stake. Matters are different if the government wants to adopt a revenue-neutral tax-cut-cum-base-broadening policy. Except for strong progression, it is less likely that an agent supports the elimination of tax privileges the stronger she is affected by other exemptions in the back.
Number of Pages in PDF File: 11
Keywords: income tax reform, public choice
JEL Classification: D72, D74working papers series
Date posted: March 30, 2005
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