Tax Structure and Government Expenditures Under Tax Equity Norms

35 Pages Posted: 14 Oct 2010

See all articles by Tobias König

Tobias König

University of Hannover

Andreas Wagener

Leibniz Universität Hannover - Economics and Business Administration Area; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Vienna University of Economics and Business Administration

Date Written: October 13, 2010

Abstract

We augment a standard tax model by concerns about tax equity: people get upset when labour is taxed more heavily than capital. Even the slightest concern for tax equity invalidates the common recommendation for small open economies that capital should remain tax-exempt. This holds for exogenous as well as for endogenous government expenditures and irrespective of whether concerns with tax equity only cause emotional discomfort or also impact on work incentives. If concerns with tax equity get more intense, the economy may choose higher taxes on labour and move to the downward sloped part of its Laffer curve. For endogenous government spending, stronger concerns with tax equity may call for a larger size of the public sector.

Keywords: justice, fairness, taxation, policy mix

JEL Classification: H20, E62, P16, Z10

Suggested Citation

König, Tobias and Wagener, Andreas, Tax Structure and Government Expenditures Under Tax Equity Norms (October 13, 2010). CESifo Working Paper Series No. 3205, Available at SSRN: https://ssrn.com/abstract=1691497

Tobias König

University of Hannover ( email )

Koenigsworther Platz 1
30167 Hannover, DE 30167
Germany

Andreas Wagener (Contact Author)

Leibniz Universität Hannover - Economics and Business Administration Area ( email )

Koenigsworther Platz 1
30167 Hannover
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Vienna University of Economics and Business Administration ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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