Representative Democracy and Marginal Rate Progressive Income Taxation

32 Pages Posted: 24 Jan 2003

See all articles by Esteban F. Klor

Esteban F. Klor

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR)

Oriol Carbonell-Nicolau

Rutgers University

Multiple version iconThere are 2 versions of this paper

Date Written: March 2001

Abstract

This paper develops a political economy model that is consistent with the fact that democracies have a preference for increasing marginal tax rates on income. We present a model in which there is an exogenous set of political parties with preferences over the set of admissible tax schedules. This set contains virtually any increasing and piecewise linear continuous function. Each party decides whether or not to present a candidate for election. There is a fixed cost of running. The elected candidate implements one of her preferred tax policies. Our main results provide conditions under which a Strong Nash Equilibrium exists, and a tax schedule with increasing marginal rates is implemented in some Nash Equilibria and in any Strong Nash Equilibrium.

Keywords: Representative Democracy, Marginal Rate Progressive Income Taxation

JEL Classification: D72

Suggested Citation

Klor, Esteban F. and Carbonell-Nicolau, Oriol, Representative Democracy and Marginal Rate Progressive Income Taxation (March 2001). Available at SSRN: https://ssrn.com/abstract=363540 or http://dx.doi.org/10.2139/ssrn.363540

Esteban F. Klor (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

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HOME PAGE: http://economics.huji.ac.il/facultye/klor/klor.htm

Centre for Economic Policy Research (CEPR) ( email )

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Oriol Carbonell-Nicolau

Rutgers University ( email )

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