Francisco Marhuenda Hurtado
Joint with Aditya Kuvalekar (Université Carlos III de Madrid)
Abstract: In this paper, we introduce a parameter capturing factors that individuals evaluate apart from the net tax burden while voting. We prove that with the introduction of this parameter, parties with a preference for tax policies that are regressive towards the end of income distribution can beat certain progressive tax functions. More importantly, we prove that for a sufficiently high range of this parameter, we can have tax policies that are progressive in the beginning and regressive towards the end that will weakly beat all the progressive tax policies. When the parameter is below the above mentioned threshold, we feel that there could exist some progressive tax policies that weakly beat all the progressive and regressive tax policies but that is an open question. If true, that would rationalize the presence of non-extreme progressive tax policies as an outcome of electoral competition.