Income Taxation and the Diversity of Consumer Goods: A Political Economy Approach

Renaud Bourlès, Michael T. Dorsch, Paul Maarek

Research output: Contribution to journalArticlepeer-review

Abstract (may include machine translation)

After-tax income inequality has risen since the mid-1990s, as increases in market income inequality have not been offset by greater fiscal redistribution. We argue that the substantial increase in the diversity of consumer goods has mitigated mounting political pressures for redistribution. Within a probabilistic voting framework, we demonstrate that if the share of diversified goods in the consumption bundle increases sufficiently with income, then an increase in goods diversity can reduce the political equilibrium tax rate. Focusing on OECD countries, we find empirical support for both the model's micro-political foundations and the implied relation between goods diversity and fiscal policy outcomes.

Original languageEnglish
Pages (from-to)960-993
Number of pages34
JournalScandinavian Journal of Economics
Volume121
Issue number3
DOIs
StatePublished - Jul 2019

Keywords

  • Diversity of goods
  • probabilistic voting
  • redistribution
  • taxation

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