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RESEARCH PRODUCT

Reforming a complicated income tax system: The political economy perspective

Jens SuedekumSalvatore Barbaro

subject

MacroeconomicsEconomics and EconometricsValue-added taxAd valorem taxDirect taxPolitical economyIncome taxPolitical Science and International RelationsState income taxEconomicsTax reformTax avoidanceIndirect tax

description

Abstract In this paper we analyze the political economy of revenue-neutral income tax reforms when a government aims at cutting back deduction possibilities in exchange for lower tax rates (“tax-cut-cum-base-broadening”). We show that the individual decision whether to support or reject a reform proposal depends on how strongly the voter is affected by all available exemptions, even if the cut of only one single exemption is at stake. The voting outcome in the society depends on the joint distribution of the deductible characteristics. Due to implicit logrolling there are cases where only symmetrical tax reforms are possible, whereas for other properties of the joint distribution only asymmetric cuts of privileges are politically viable.

yearjournalcountryeditionlanguage
2006-03-01European Journal of Political Economy
https://doi.org/10.1016/j.ejpoleco.2005.05.005