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On the Political Economy of Nonlinear Income Taxation

Berliant, Marcus and Gouveia, Miguel (2022): On the Political Economy of Nonlinear Income Taxation.

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Abstract

The literatures dealing with voting, optimal income taxation, implementation, and pure public goods are drawn on here to address the problem of voting over income taxes and a public good. In contrast with previous articles, general nonlinear income taxes that affect the labor-leisure decisions of consumers who work and vote are allowed. Uncertainty plays an important role in that the government does not know the true realizations of the abilities of consumers drawn from a known distribution, but must meet the realization-dependent budget; the tax system must be robust. Even though the space of alternatives is infinite dimensional, conditions on primitives are found to assure existence of a majority rule equilibrium when agents vote over both a public good and income taxes to finance it.

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