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On redistribution effects of public debt amongst single-minded generations

Canegrati, Emanuele (2007): On redistribution effects of public debt amongst single-minded generations.

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Abstract

In this paper I will introduce a new political economy model, where there exists a competition amongst two political candidates, which aim to set a policy which enables them to win elections, max- imising the probability of winning. I will show that, if taxes neces- sary to repay the debt are not lump sum but proportional to income, we have dramatic distorting effect on the labour supply. The prob- lem is exacerbate once we take into account that the Government set taxes in order to favour the most in‡uencing social group. As a consequence, effective marginal tax rates are differentiated amongst social groups and thus the burden of public debt is not equally borne.

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