Politically Feasible Reforms of Non-Linear Tax Systems
114 Pages Posted: 16 Jun 2020
Date Written: April 14, 2020
We present a conceptual framework for the analysis of politically feasible tax reforms. First, we prove a median voter theorem for monotonic reforms of non-linear tax systems. This yields a characterization of reforms that are preferred by a majority of individuals over the status quo and hence politically feasible. Second, we show that every Pareto-efficient tax systems is such that moving towards lower tax rates for below-median incomes and towards higher rates for above median incomes is politically feasible. Third, we develop a method for diagnosing whether a given tax system admits reforms that are welfare-improving and/ or politically feasible.
Keywords: Non-Linear Income Taxation, Tax Reforms, Political Economy, Welfare Analysis
JEL Classification: C720, D720, D820, H210
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