The Interaction of Tax Exemptions and Individual Tax Reform Preferences

IZA Discussion Paper No. 1543

11 Pages Posted: 30 Mar 2005

See all articles by Salvatore Barbaro

Salvatore Barbaro

Johannes Gutenberg University Mainz - Department of Economic Theory

Jens Suedekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Date Written: March 2005

Abstract

The individual voting behavior on the abolishment of single income-tax exemptions crucially depends on how strongly agents are affected by other deduction possibilities that are not at stake in the reform plans of the government. The interactions depend (i) on the shape of the tax schedule, and (ii) on how the government wants to use the revenue that is generated by the cut of tax privileges. If government plans to increase redistribution in form of lump-sum transfers, then the political chances of a tax reform increase with the existence of other deduction possibilities under progressive taxation. With proportional taxation and a budget-enlargement policy, the voting decision depends only on the particular tax privileges at stake. Matters are different if the government wants to adopt a revenue-neutral tax-cut-cum-base-broadening policy. Except for strong progression, it is less likely that an agent supports the elimination of tax privileges the stronger she is affected by other exemptions in the back.

Keywords: income tax reform, public choice

JEL Classification: D72, D74

Suggested Citation

Barbaro, Salvatore and Südekum, Jens, The Interaction of Tax Exemptions and Individual Tax Reform Preferences (March 2005). IZA Discussion Paper No. 1543, Available at SSRN: https://ssrn.com/abstract=695227

Salvatore Barbaro (Contact Author)

Johannes Gutenberg University Mainz - Department of Economic Theory ( email )

D 55099 Mainz
Germany

Jens Südekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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