Consumption Versus Income Taxation: Three Moments in the Political Economy of Fiscal Choice

Public Finance and Management, Symposium on Heterogeneity and Public Policy, Vol. 9, Nos. 2/3, 2009

50 Pages Posted: 21 Apr 2010

See all articles by Stanley L. Winer

Stanley L. Winer

Carleton University - School of Public Policy and Administration; Carleton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

George Warskett

affiliation not provided to SSRN

Walter Hettich

California State University, Fullerton - Department of Economics

Date Written: December 30, 2009

Abstract

Most modern economies tax both consumption and labour income. While there is an extensive normative literature on the optimal mix of the two taxes, there is little examination of what determines the actual mix in a well specified political economy context. We use a multi-dimensional spatial voting framework to simulate endogenous political tax equilibria. The model accommodates complex interactions between many of the first three moments (mean, variance and skewness) of three distributions identified in the literature as crucial: the distribution of income, of preferences for public goods and the distribution of political influence. To simplify, we focus on a balanced and an asymmetric society and analyze how different combinations of distributional moments interact in the determination of tax equilibria. Interesting links emerge between the nature of the distribution of preferences for public expenditure, income inequality and the relative importance of consumption taxation. The analysis suggests that studies of single taxes have limited relevance for the explanation of the observed tax mix.

Keywords: tax structure, moments of key distributions, political equilibria

JEL Classification: D72, D78, H11, H20, H24

Suggested Citation

Winer, Stanley L. and Warskett, George and Hettich, Walter, Consumption Versus Income Taxation: Three Moments in the Political Economy of Fiscal Choice (December 30, 2009). Public Finance and Management, Symposium on Heterogeneity and Public Policy, Vol. 9, Nos. 2/3, 2009, Available at SSRN: https://ssrn.com/abstract=1593200

Stanley L. Winer (Contact Author)

Carleton University - School of Public Policy and Administration ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-2600 x2630 (Phone)
613-520-2551 (Fax)

HOME PAGE: http://www.carleton.ca/winer

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-2600 ex.2630 (Phone)
613-520-2551 (Fax)

HOME PAGE: http://www.carleton.ca/winer

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

George Warskett

affiliation not provided to SSRN

Walter Hettich

California State University, Fullerton - Department of Economics ( email )

Fullerton, CA 92834
United States

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