Redistributive Politics and the Tyranny of the Middle Class

Tinbergen Institute Discussion Paper 16-032/VI

55 Pages Posted: 29 Apr 2016

See all articles by Floris Zoutman

Floris Zoutman

Norwegian School of Economics (NHH) - Department of Business and Management Science

Bas Jacobs

Erasmus University Rotterdam (EUR); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute)

Egbert Jongen

CPB Netherlands Bureau of Economic Policy Analysis

Multiple version iconThere are 2 versions of this paper

Date Written: April 26, 2016

Abstract

The Netherlands has a unique tradition in which all major Dutch political parties provide CPB Netherlands Bureau for Economic Policy Analysis with highly detailed proposals for the tax-benefit system in every national election. This information allows us to quantitatively measure the redistributive preferences of political parties. For each political party we calculate social welfare weights by income level using the inverse optimal-tax method. We find that all political parties roughly give a higher social welfare weight to the poor than to the rich. Furthermore, left-wing parties attach higher social welfare weights to the poor and lower social welfare weights to the rich than right-wing parties do. However, we also discover two anomalies. First, all political parties give a much higher social welfare weight to middle incomes than to the working and non-working poor. Second, all Dutch political parties attach a slightly negative social welfare weight to the rich by setting top rates beyond the revenue-maximizing 'Laffer' rate. Finally, we detect a strong political status quo, since social welfare weights of all political parties hardly deviate from the welfare weights that are implied by the pre-existing tax-benefit system. We argue that political-economy considerations are key in understanding the political status quo and why middle-income groups are able to lower their tax burdens at the expense of both the low- and high-income groups.

Keywords: Inverse optimal-tax method, revealed social preferences, political parties, optimal taxation, income redistribution

JEL Classification: C63, D63, H21

Suggested Citation

Zoutman, Floris and Jacobs, Bas and Jongen, Egbert, Redistributive Politics and the Tyranny of the Middle Class (April 26, 2016). Tinbergen Institute Discussion Paper 16-032/VI. Available at SSRN: https://ssrn.com/abstract=2769798 or http://dx.doi.org/10.2139/ssrn.2769798

Floris Zoutman (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Bas Jacobs

Erasmus University Rotterdam (EUR) ( email )

PO Box 1738
Rotterdam, Zuid-Holland 3000 DR
Netherlands
+314081452 (Phone)

HOME PAGE: http://people.few.eur.nl/bjacobs

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Egbert Jongen

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

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