Favoritism toward the Poor and a Discontinuous Tax Structure

Sato, Hideki (2015): Favoritism toward the Poor and a Discontinuous Tax Structure. Published in: Applied Economics

Abstract

This paper aims to theoretically clarify the following two points. First, even though the government shows favoritism toward the poor and wants to exempt low-income taxpayers and secure its necessary income tax revenue by taxing only high-income taxpayers, the government ends up taxing the poor, which is in opposition to favoritism, due to its inability to observe individual taxpayers'income levels. Second, even without observing each taxpayers' income level, if favoritism is sufficiently strong, the government can discontinuously resolve such unintentional taxation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Favoritism, Optimal income taxation, Tax evasion, Nash equilibrium.
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance

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